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Finding Legitimate Wholesale Suppliers (And Spotting the Fraudulent Ones)

Finding Legitimate Wholesale Suppliers (And Spotting the Fraudulent Ones)

As I wrote in a previous article, the dismal economy has led more people to look into perhaps making a living as an online retailer. This is not exactly a brand new concept, as countless companies and individuals have established successful internet businesses by selling on eBay, Amazon, bid-and/or their own independent web store. Again, however, building a successful online enterprise which is profitable is not the easy “make millions in your underwear” operation that some claim that it is. Running an online business is hard work. It requires constant attention to detail, organization, and relentless research efforts. One of the most common routes to e-business failure is lack of research and fact finding at all stages of business development. Whether the task is determining prices, choosing a merchant credit card processor, or simply deciding what the logo will look like, successful businesses research and investigate options prior to making their final decisions.

While important in all decisions, perhaps the most important area in which to perform exhaustive investigations is when choosing suppliers from whom to buy your product (s). Many a business has been destroyed before even getting off the ground as a result of its founder believing that all suppliers with a web presence are legitimate. Really, it is the other way around. Many experts estimate that 70-80% of so called wholesale suppliers aren’t 100% legitimate. While a good many are outright scammers who will not deliver any goods what-so-ever, many more are scammers of a slightly different type. With the latter, you will get a shipment of goods, but your order will contain inferior, replica, or broken products, or may be a partial order of what you THOUGHT you were getting.

With so much fraud surrounding wholesale suppliers, you may be thinking, “If 80% of suppliers are scammers, how did all the successful online sellers avoid this trap when starting out?” The good thing is that there are several things you can do to minimize – maybe even eliminate – the possibility you will fall victim to the scams and dishonesty amongst these companies. We will examine several techniques which are used by business owners-myself included-to weed out the good suppliers from the bad and the ugly. Keep in mind that the tips below are not meant to supplement overall good judgment. Also, these tips should be used as part as an overall strategy. One or a couple of checks does not prove the legitimacy or illegitimacy of a potential supplier. However, when used together as a part of your evaluation strategy, you can reduce your risk to almost nothing.

Here are a few basic things to do to investigate potential suppliers…

1. Do a WhoIs.com check to see where the domain is registered. Now, you will also usually get a name, but that really doesn’t mean anything. The thing to look at is just to verify that the company’s domain is listed in the same country as the business. You would be surprised how many fake companies are set up to look like a U.S. company, but are really located somewhere else, like Nigeria or Ghana (Ghana is becoming the new Nigeria in terms of scammers, BTW)

2. “Rip-off Report

It’s not scientific, but type the companies name into a browser, followed by “scam, or rip-off” and see what you find i.e.: Chippies chips rip off. Or, use the site Ripoffreport.com to check a business. It is natural for a company to have a few negative things written about them, but check what the complaints are. If the comments refer to things like “didn’t call me back,” or “shipping took a while” then it is usually just a few hard to please customer. Obviously, though, if comments refer to not getting merchandise or inferior merchandise, then it is a red flag. Still, be sure to use this along with other forms, because competing companies have been known to use these services to try to slander their competitors.

3. Call them
Call and talk to someone. Many scam sites will have a phony number-if they have one at all. Or, you may get someone answering the phone that says “Hello?” If this happens, hang up and never do business with them. If and when you do get someone on, ask them some industry related questions. For example, being in the computer business, I might ask a potential supplier if they had any motherboards which took ddr3 and an Intel core i7 processor. If they hesitated and didn’t know what I was talking about, I would worry. Or, better yet, I might ask if they had any notebooks that featured an AMD Athlon II Core i4 processor. If they said yes, I would hang up because there is no such animal!

4. Research their Physical Address
Take their address and put it into a search browser or Google Maps. I did this once recently when I suspected credit card fraud from a customer. The address they gave me was for a children’s center in San Francisco. When I put it into Google Maps and the search engine, it came up as a Hotel. This was a scam all the way. It saved me $500.00 for the computer I would have been out on.

5. Ask about small sample order-and build from there

While it is common for wholesalers to have order minimums, most will allow you an initial trial order and then build from there. The last thing you want to do is put down your entire net worth down on a supplier you have never bought from before-no matter how much all the other signs tell you they are legit.

6. Call the manufacturers
This is probably the most for sure method of legit suppliers. The manufacturer will know the distributors they sell to.

RED Flags-While not 100% proof that you are dealing with a scammer, the following are pretty common among those less than reputable suppliers

1. “We accept Wire transfer payment only”
Be cautious of those who only except wire transfer payments. While there may be a few legitimate suppliers that do not accept credit cards, not doing so should send up the red flag. With wire transfer, it is difficult if not impossible to track it. Thus, if someone rips you off or sends you less than what you ordered, you basically have no recourse. In my 2.5 years as an online seller, I have never-and will never-deal with a company that is wire transfer only. I would rather lose out on the chance of possible profits than lose a part of my operating capital. I deal with 5 suppliers currently-all of which are authorized distributors-all of which take credit card.

2. “Merchandise AS IS/ No Returns”
Again, there is a reason why they are saying this. Now, there are some decent salvage dealers that have this policy. However, with salvage buying, you are buying customer returns and thus assume that a certain portion of items will be defective. However, as a general rule I never buy from any company that has an AS IS/No Return Policy. When I was starting out, I did buy from one company that had this, but I actually flew to visit them and inspect merchandise prior to buying. These days, I don’t do much of any of this type of business anymore, because it creates too many customer headaches down the road.

3. “We can make you a ton of money on eBay”
Beware of those companies advertising how much money they can make you. This is almost always the work of marketers who prey on well-meaning beginning online sellers to get them to plunk down a lot of money for a one-time sale. Companies such as this-if they send you anything at all-will often used bait and switch, charge you too much, and/or short you on your order. Real legitimate wholesalers will never make claims like this, because they know that a successful business is much more than just getting products at a certain price. A vast majority of wholesalers really don’t like to sell to eBay sellers anyway. There are many reasons for this, but for right now I will just say that legit wholesalers will not ever make any guarantee or even insinuate how wealthy you will be.

4. “Buy from China @ unbelievable prices”
Never buy from a Chinese company unless you know for sure they are legit. There are some good buys in China, there is no question. But, for every legit supplier there are 100 scams. People know this is a common lure, so this is an extremely popular ruse.

5. No Contact info on site
You should see Name of Company, Address, and Phone number at the very least