A contract with a Chinese supplier: what to include
What to put in a contract with a Chinese factory: specification, price and Incoterms, payment schedule, timelines, quality control and AQL, defect liability, packaging, dispute resolution. A checklist.
A contract is not a formality but your main leverage if something goes wrong. Most disputes with factories are resolved (or never arise) thanks to terms fixed in advance. Let us break down what a contract with a Chinese supplier must contain.
Why you need a contract
A contract fixes three things: what is produced, on what terms and what happens if obligations are breached. Without it, any dispute comes down to “we didn’t agree on that” — with no evidence. With a detailed contract, you have grounds to demand replacement, rework or a refund.
What to include without fail
1. Parties and details. Full legal names, details, the supplier company’s bank account (payment goes there and only there).
2. Specification. The most important section: each item with dimensions, materials, colour/tone (by code or sample), quantity. The more detailed, the less mismatch. Best as an annex with photos/drawings.
3. Price and Incoterms. Unit price and total, currency, and crucially — delivery terms (EXW/FOB/CIF/DDP). Without Incoterms it is unclear what the price includes.
4. Payment schedule. Staged: a deposit to start and the balance after a successful pre-shipment inspection. Tying the final payment to the result is your protection.
5. Production and shipment timelines. Specific dates or a number of days from the deposit. Ideally — liability for delay.
6. Quality control and acceptance standard (AQL). The right to a pre-shipment inspection and an agreed acceptable defect level (AQL: how many minor/major/critical defects are allowed). This removes the “defect or not” dispute.
7. Defect liability and replacement. What happens with defects: rework, replacement or refund, and at whose cost. Time limits for fixing.
8. Packaging and labelling. Packaging requirements (especially for fragile and bulky cargo) and case marking.
9. Dispute resolution. Applicable law and the procedure for resolving disputes (often arbitration, e.g. CIETAC). Contract language: ideally bilingual (Chinese + yours), specifying the prevailing version.
Common mistakes
- A vague specification — “grey sofa” instead of dimensions, material and colour code.
- No Incoterms — a dispute over what the price includes and who pays for logistics.
- Full prepayment without tying the balance to inspection.
- No defect section — unclear who is liable and who pays for replacement.
- Only verbal agreements in chat instead of a signed document.
A contract works not when all is well, but when something goes wrong. The most important sections are the specification, staged payment and defect liability.
Contract checklist
- Supplier company’s details and account
- Detailed specification (dimensions, materials, colour, quantity)
- Price + currency + Incoterms
- Payment schedule with the balance tied to inspection
- Production and shipment timelines
- Right to inspection + AQL
- Liability for defects, replacement, refund
- Packaging and labelling
- Applicable law and dispute procedure, contract language
Don’t want to work out the terms yourself? We work under a contract with a specification, staged payment, inspection and accountability for quality — you get protection, not just a chat thread. We will explain in more detail for free.
Frequently asked questions
What must a contract with a Chinese factory include?
The supplier company's details and account, a detailed specification, the price with Incoterms, a payment schedule with the balance tied to inspection, timelines, the right to inspection and AQL, defect liability, packaging and the dispute-resolution procedure.
Why specify Incoterms in the contract?
Without Incoterms it is unclear what the price includes and who pays for logistics and risk. A price of "$10,000 EXW" and "$10,000 CIF" are different final amounts, so the delivery terms are always fixed.
What is AQL in a contract?
AQL is an acceptable defect level agreed in advance: how many minor, major and critical defects are allowed per batch. The right to inspection and AQL in the contract remove the "defect or not" dispute.
What language should the contract with a Chinese factory be in?
Ideally bilingual (Chinese + your language), specifying the prevailing version. The disputes section states the applicable law and the procedure for resolving disputes (often arbitration, e.g. CIETAC).