A supplier’s payment instructions may appear to be an administrative detail. In reality, they are an important part of supplier due diligence.

When the company receiving the buyer’s money is different from the company named in the contract, the buyer may face fraud risk, tax and compliance questions, difficulty proving payment, and uncertainty about which entity is responsible for performance.

The payment structure should be reviewed before funds are transferred.

The Bank Account Name Should Generally Match the Contracting Party

The safest structure is usually straightforward:

• The supplier’s Chinese legal name is verified.
• The same legal name appears in the contract.
• The contract is properly executed by that company.
• Payment is made to a corporate bank account held in that company’s name.
• The namesmay appear slightly different because of translation or formatting.

The controlling question is whether the account belongs to the same legal entity.

When the names do not match, the buyer should stop and investigate.

Red Flag 1: Payment to a Personal Account

A request to pay an owner, employee, salesperson, relative, or other individual creates obvious risk.

The supplier may explain that a personal account is faster, avoids banking delays, or is necessary for a small order. Even where there is no fraud, payment to an individual can make it harder to establish that the contracting company received the money.

It may also indicate:

• Tax avoidance
• Weak internal controls
• Financial distress
• A side transaction not approved by the supplier
• An employee diverting funds
• An attempt to keep revenue outside the company
• A company unable to use its normal bank accounts

Buyers should be highly cautious about making commercial payments to individuals.

Red Flag 2: Payment to an Unrelated Chinese Company

A supplier may request payment to another mainland Chinese company, claiming that it is an affiliate, export agent, collection company, or financing partner.

The buyer should verify:

• The recipient’s legal identity
• Its ownership and relationship with the supplier
• Why it is receiving the funds
• Whether the supplier has formally authorized the arrangement
• Whether payment to the recipient will legally discharge the buyer’s payment obligation
• Which company will issue the relevant invoice
• Whether the recipient has any obligation to perform or refund the payment
  

A written payment direction letter alone may not adequately protect the buyer if the underlying relationship is unclear.

Red Flag 3: Payment to a Hong Kong Company

Many legitimate mainland Chinese suppliers use Hong Kong affiliates for international sales and foreign-currency collection. A Hong Kong payment account is therefore not automatically suspicious.

However, the buyer should understand the structure.

Questions include:

• Is the Hong Kong company owned by the mainland supplier’s shareholders?
• Is it named as the seller in the contract?
• Does it have any employees, assets, or operations?
• Is the mainland factory contractually obligated to manufacture the goods?
• Which entity provides the warranty?
• Which entity must refund the deposit if production fails?
• Which entity owns the tooling or intellectual property?
• Where would a dispute be resolved?

If the buyer contracts only with a thinly capitalized Hong Kong company while all assets and production remain in mainland China, enforcing a claim may become more complicated.

Red Flag 4: Last-Minute Changes to Payment Instructions

A payment account change shortly before a deposit or final payment is due is one of the most serious warning signs.

Fraudsters may compromise a supplier’s email account, monitor negotiations, and send altered bank instructions at the exact point when the buyer expects to pay. The fraudulent message may use authentic signatures, prior email chains, invoices, and transaction details.

Whenever payment instructions change, the buyer should verify the change through a separate channel.

For example:

• Call a previously verified telephone number.
• Speak with a known senior contact.
• Do not rely on the telephone number provided in the account-change email.
• Confirm the account name, bank, country, and reason for the change.
• Require written confirmation from an authorized representative.
• Consider a small test payment for significant new accounts.
• Use internal dual approval before releasing funds.

Email confirmation alone is not sufficient when the email account itself may be
compromised.

Red Flag 5: Pressure and Unusual Urgency

The supplier may claim that immediate payment is required to reserve raw materials,
maintain pricing, meet a production window, or avoid a bank-account closure.

Some commercial deadlines are genuine. Unusual pressure should nevertheless trigger
additional review, particularly when combined with changed payment instructions or an unfamiliar recipient.

Fraud succeeds when normal controls are bypassed because a payment is presented as urgent.

Red Flag 6: The Payment Country Does Not Fit the Transaction

A buyer dealing with a mainland Chinese supplier may be instructed to send funds to an account in Hong Kong, Singapore, Europe, the United States, or another jurisdiction.

There maybe a legitimate treasury or trade-finance explanation. The buyer should not assume one.

Therecipient, ownership structure, contractual role, and commercial purpose should be documented. Payments routed through unexpected countries can also create sanctions, anti-money-laundering, tax, customs, or internal-compliance concerns.

The Contract Should Address Third-Party Payments

Where payment to an affiliate or collection agent is necessary, the contract should clearly state:

• The identity of the authorized recipient
• The recipient’s bank account details
• The relationship between the recipient and supplier
• That payment to the recipient satisfies the buyer’s obligation
• That the supplier remains fully responsible for performance
• That disputes between the supplier and recipient do not affect the buyer
• That any change requires specified verification and authorization procedures

The buyer should also retain the contract, invoices, bank instructions, confirmations, and proof of payment.

Payment Verification Is Supplier Due Diligence

A supplierinvestigation should not end after confirming that the factory exists. The flow of funds is part of the transaction structure.

Before making a deposit, the buyer should be able to answer three questions:

1. Who is receiving our money?
2. Why is that entity receiving it?
3. What rights do we have against the supplier and recipient if the goods are not delivered?

When those questions cannot be answered clearly, the buyer should not allow production pressure or an approaching deadline to substitute for verification.