MATE case stories — «The Unstable Manufacturer»

Reading time: 7 minutes

We're launching a new regular column at MATE, where we'll tell you about interesting cases and decisions from our work with clients.

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The task

Our first story is a case about arranging production and delivery of clothing. The request was fairly classic:

• the client already had a manufacturer they'd been working with for a long time;
• we needed to organize production at the client's factory and arrange official import into Russia.

Timeline of the work

• Our buyer contacted the manufacturer and confirmed all the details needed to sign a contract for official payment of production. The manufacturer claimed to have a registered business entity (an IP) - all the preparations for work were made.
• We signed a contract with the client, took the advance payment, and got ready to pay the factory.

Right at the point of requesting the entity's registration details to sign the contract with the factory, the manufacturer claimed the entity didn't actually exist and asked for payment via a transfer to a personal card - which is a risk, and shifts responsibility for the factory's actions onto our company. Since the client had originally requested production strictly at this specific factory, we offered the client an amendment to the contract for this order, under which all responsibility for the factory's actions and work would shift to the client's side.

• At a meeting with the client, this proposal was approved, the amendment was signed, and we went back to the manufacturer with a payment proposal.
• This time the manufacturer said he wouldn't accept payment from the company's bank account. At his request, we would need to withdraw funds from the bank account and arrange a transfer to his card as an individual.

P.S.: withdrawing funds from a bank account in China requires paying a 20% tax on the amount withdrawn.

• At a follow-up meeting with the client, we explained that time kept dragging on, the manufacturer wasn't giving payment terms up front, and kept raising new demands each time. The client also reworked the delivery economics given the new information and decided to switch manufacturers.

Decisions and results

• We made sure that no action creating risk to the client's capital or to the project going forward was taken on our side without a meeting with the client.
• The client kept their money and moved on to working with another manufacturer without unnecessary costs. Throughout every interaction, the advance funds stayed safely in our bank account.

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Some of our readers will say:

"Well, so what — they could've just cashed it out through grey schemes or workarounds and paid with no tax."

The answer is fairly simple: the result of our actions was the prospect of working with a new manufacturer without any need to run grey payment schemes. Working with a factory under contract sets a clear line of liability, removes financial costs, and opens up the possibility of claiming a VAT refund...

For consultations and proposals, our managers are here - Ada and Rail