The Factory Told Me the Price Was Wrong After I Signed the PI
After both you and the supplier agreed on the price, you signed the Proforma Invoice (PI) and paid the deposit. Then the supplier suddenly notified you: “Sorry, the previous quotation was wrong. We need to increase the price.”
So, in this situation, what should you do?
We first need to know what happened before we make the decision. If the supplier increases the price at the last minute, it may be due to different reasons.
1. Skyrocketing Raw Material Prices
This is related to the global situation.
For example, I have a client who makes watch straps. The raw material for the watch straps is plastic. After the supplier gave the quotation and the client transferred the deposit, oil prices suddenly increased, which caused plastic prices to rise sharply. Finally, the supplier asked for a price increase on the order.
2. Exchange Rate Fluctuations
As we all know, exchange rates are always changing with the market.
If the quotation is in USD, but the USD depreciates after the quotation is given while the supplier’s costs are calculated in RMB, the supplier’s profit may become very low. For a large order, the exchange rate difference is no longer a small amount.
At this point, the supplier may propose a price increase before production can be arranged.
3. Low-Price Order Grabbing
There is a human factor.
I previously encountered a salesperson who deliberately quoted an artificially low price just to secure the order. After receiving the deposit, when the salesperson reported the order to the factory manager, they found that the order could not be produced at that price. The salesperson then turned around and asked the buyer for a price increase.
4. Dealing with a Trading Company
Maybe you are dealing with a trading company rather than a physical factory.
This is one of the most common reasons.
After the trader understands your order requirements, they pass those requirements to the factory. The factory then communicates with the trader and confirms the details, and the trader passes the information back to you.
There is an extra layer in between, so misunderstandings happen. When the factory finally understands the requirements in detail and finds that the actual cost is higher, the supplier may tell you that a price increase is needed.
There are various reasons why suppliers increase their prices, and how you handle the situation depends on the reason.
Here, I want to give you some possible solutions. Actually, I suggest working with a team that is familiar with the way the Chinese market operates. They can help you identify potential risks and deal with them at an early stage. It can help avoid many trade risks.
The Solutions
First, review the PI document carefully.
What exactly is stated in the document? Does it clearly list the price, product parameters, quotation validity period, and other factors that directly affect the quotation?
If the PI only states the total amount, you will be in a difficult position when dealing with a price increase.
Second, check the signed documents.
If the PI has been signed and stamped by both parties, then the PI may have legal binding force. Without your permission, the factory may not have the right to unilaterally change the price.
Third, if the price increase is caused by a unilateral reason on the factory’s side, such as a quotation error, a salesperson who is new and unfamiliar with the quotation process, or a supplier deliberately offering a low price to secure the order and then raising the price after receiving the deposit, or a supplier who was careless when quoting and realized that there was no profit after receiving the order, you can completely refuse these unreasonable demands and can even ask the Chinese market supervision authorities to intervene.
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