What to Require from a Sourcing Agent in China — SLA, QC Checklist & Contract Clauses
Working with a sourcing agent in China can dramatically simplify procurement — but only if the relationship is set up with clear, enforceable expectations. Too many buyers treat agents as informal partners and pay the price in late shipments, hidden markups, quality escapes and, in worst cases, lost intellectual property. This guide turns that uncertainty into an operational playbook: what to require, how to verify it, and how to hold an agent accountable.
Below you’ll find a practical, no-nonsense roadmap that procurement teams can use immediately. It covers the documentary checks that prove a supplier’s legitimacy, a step-by-step vetting SOP, and the three inspection gates (FAI → IPQC → PSI) with concrete sampling and AQL guidance. You’ll also get copy-and-paste SLA and contract language — including IP, ESG and penalty clauses — plus a 90-day implementation plan and downloadable checklists to put these controls into action.
This is not theory. The recommendations are designed for enforceability: measurable KPIs, transparent fee rules, independent inspection rights, and contingency triggers that protect your supply continuity. Read on to build a sourcing relationship that reduces risk, cuts rework, preserves margin, and protects your brand.
A one-page, executable checklist that turns vague expectations into measurable SLAs and KPIs.
Concrete QA/QC sampling plans (first article, in-process, pre-shipment) and example AQL thresholds by product type.
Copy-and-paste contract clauses: scope, IP/NDA, SLA/KPI + liquidated damages, ESG & audit, termination and dispute resolution.
Vetting SOP with red flags and a short due-diligence script you can use immediately.
Two short anonymized case studies with clear lessons and next-step templates.
Company proof: business license, tax ID, export license, main factory address, photos.
References & capacity: 2 client references + sample production log showing recent orders.
Samples & FAI: Written sample approval timeline and First Article sign-off (FAI).
QC plan: define inspection points (FF, IPQC, PSI), sampling %, AQL for critical/major/minor.
SLA & KPIs: on-time delivery ≥95%; order lead-time variance ≤±7 days; batch defect rate ≤1% (adjust per industry).
Fees & transparency: itemized fee table (commission, procurement fee, inspection, logistics).
IP & NDA: signed NDA + clause restricting agent from introducing product to others.
ESG: proof of recent social/chemical audit or promise of third-party audit within 6 months.
Logistics responsibility: define Incoterm, freight owner, customs documents, claims process.
Contingency: backup factory plan, minimum safety stock, emergency reorder SLA.
A sourcing agent is your local operational arm. Vague expectations become failures: missed shipments, poor quality, IP exposure, or hidden markups. Treat the relationship like a contracted operations provider — not a friend who “will sort it out.” Require documentation, measurable KPIs, and predefined remedies. The rest of this article turns those words into procedures, templates and contract text you can use the same week.
Procurement managers — need reproducible checklists and SLA templates.
Supply chain directors — need risk controls, contingency planning, and KPI dashboards.
Brand/product managers (cross-border/e-commerce) — need FAI, packaging, and FBA prep requirements.
Compliance/ESG officers — need audit triggers, remediation timelines, and proof of corrective action.
If you’re building or re-scoping a sourcing program, focus first on: (1) vetting & documentation, (2) QA systems tied to money (penalties/incentives), and (3) contingency & IP protections.
Require originals or notarized scans (kept in your contract folder):
Business license + legal representative.
Export/import tax registration and customs declaration examples.
Factory address + recent photos of production lines and warehouse.
Product samples with dated sample records.
Proof of insurance (cargo & liability) if they claim to insure shipments.
Signed client reference letters or contactable references with order volumes and dates.
Keep copies in your document management system and attach to the PO.
Document check (Day 0) — confirm business license, export records.
Reference check (Day 1–2) — call 2 referees; ask about quality, timeliness, and transparency. Use the script below.
Sample & FAI (Day 3–14) — request samples; define FAI acceptance criteria; log changes.
Site evaluation (Day 7–30) — remote video walkthrough or physical audit; use the factory audit form.
Contract & trial order (Day 14–45) — sign a limited PO with clear SLA, payment split, and inspection condition.
Monitor first two orders — enforce weekly status reports (photos, material receipts, capacity) and a final PSI.
Quick reference phone script for references:
“Hi — we are considering [Agent name]. Can you confirm: (1) Did they source/inspect for you? (2) Did they meet delivery dates? (3) Were there any hidden fees? (4) How did they handle nonconformance?”
Record names, dates, and outcomes.
Red flags: evasive answers, unwilling to provide photos, inconsistent company address, refusal to agree to PSI or third-party inspection.
Treat quality as three linked gates: First Article (FAI) → In-Process QC (IPQC) → Pre-Shipment Inspection (PSI).
Purpose: verify design-to-production intent before mass production.
Deliverables: dimensional report, photos, packaging sample, labeling.
Action: FAI approval required in writing before mold/tooling or bulk run.
Frequency: daily checks for critical processes (e.g., soldering, seam strength).
Evidence: time-stamped photos, production volume logs, rejected piece logs.
Timing: within 7 days before loading.
Who: independent third-party (recommended) or agent with accepted accountability clause.
Sampling table (practical): base sampling on lot size (examples below).
Lot size 1–500 pcs → sample 20% or min 10 pieces.
Lot size 501–3,200 pcs → sample 32 pcs (ANSI/ISO table approximate).
AQL thresholds (suggested starting points):
Critical defects: 0% tolerance (0 accept).
Major defects: AQL 1.0–2.5 (target ≤1% where safety/fit is important).
Minor defects: AQL 2.5–4.0.
Note: For electronics, set major ≤1.0; for textiles, major ≤2.5; for hardware, major ≤1.5. Use stricter thresholds for brand-sensitive SKUs.
If failed: supplier provides rework plan within 48 hours and photo evidence before re-inspection.
If rework fails again → buyer may reject entire lot and require replacement or credit. Define cost allocation for rework, freight, and third-party disposal.
Below is a practical SLA you can insert into an agreement. Replace bracketed items.
| SLA Item | Target | Measurement | Remedy / Penalty |
|---|---|---|---|
| On-time production start | ≥95% | Actual start vs PO start date (calendar days) | 0.5% PO value/day late after 3 days, capped at 10% |
| On-time delivery (shipment date) | ≥95% | Compares confirmed ship date vs PO ship date | 1% PO value/day late after 5 days |
| First pass yield (per batch) | ≥99% critical; ≥98% major | PSI / QC report | Rework at supplier cost; if repeat >2x, buyer may cancel |
| Defect rate (delivered) | ≤1.0% overall (adjust per product) | PSI defect count / lot qty | Replacement or credit, supplier pays freight |
| Reporting | Weekly status + photo evidence | Weekly report by Fri 17:00 (local time) | Failure to report = 0.1% PO value per missed report |
| Escalation response | 24 hours | Agent acknowledges and provides ETA | Failure escalates to buyer with penalty resolution meeting |
How to phrase the penalty clause (sample):
Supplier/Agent agrees that if On-time Delivery falls below the Target for any rolling month, Supplier shall pay Buyer liquidated damages equal to [X]% of the PO value per day of delay beyond the grace period, not to exceed [Y]% of PO value. Liquidated damages are agreed as a genuine pre-estimate of loss and not as a penalty.”
Note: Liquidated damages must be reasonable and enforceable in your jurisdiction — run the clause by counsel.
Below are short, practical clauses you can paste into a contract. Edit bracketed text.
“Agent shall source suppliers, negotiate price and terms, manage sample approvals, coordinate production oversight (FAI, IPQC), arrange pre-shipment inspection, and assist with logistics and export documentation as requested in writing by Buyer.”
“Agent fee structure: [percentage]% commission on FOB factory price OR fixed fee of $[amount] per PO. Third-party costs (inspection, testing, audit, freight) will be billed at cost with supporting invoices within 7 days of payment. Agent will not charge undisclosed markups.”
“Agent acknowledges Buyer’s IP and agrees not to disclose, reproduce, or circulate any designs, drawings, or specifications except for the purpose of performance under this Agreement. Agent will not introduce Buyer’s product to any third party without Buyer’s prior written consent. This obligation survives termination for [X] years.”
“Agent shall disclose all sub-suppliers and obtain Buyer’s written approval prior to sub-contracting. Agent will not place orders with entities in which the Agent or its affiliates have an ownership interest without Buyer’s written consent.”
“Buyer reserves the right to appoint an independent third-party inspector. Final acceptance occurs after PSI and issuance of Acceptance Certificate. If batch fails, Supplier shall at its own cost (i) rework product to Buyer standard; (ii) replace defective goods; or (iii) provide full credit.”
“Agent shall ensure suppliers comply with Buyer’s Supplier Code of Conduct. Agent will facilitate third-party social / environmental audits (SMETA/SA8000/ISO) as requested. Supplier shall provide corrective action plans within [30] days of any non-conformance.”
“Buyer may terminate immediately for cause where Agent materially breaches this Agreement, including repeated delivery failures, IP breach, or material false statements in certifications. On termination, Agent shall provide full cooperation for handover to Buyer or successor.”
“Any dispute will be resolved by [arbitration in Hong Kong/ Singapore / jurisdiction agreed], under [UNCITRAL / ICC] rules. Governing law: [Jurisdiction].”
Commission (% of FOB) — Common for sourcing agents. Pros: aligns incentives on purchase price. Cons: can hide markups on inspections or logistics. Require transparency and receipts.
Fixed fee per PO / monthly retainer — Good when you need predictable budgeting. Better for ongoing program management.
Project fee (one-off for new product launch) — Useful for one-time tooling/setup.
Require: itemized invoices for third-party costs and a right to audit fees annually.
Payment terms: split payments are standard: 30% deposit, 60% balance before shipment after PSI (subject to acceptance), 10% holdback for 30 days as warranty. For small suppliers, consider L/C or escrow to protect parties.
Define who is responsible for which cost and risk clearly:
FOB (Factory) — Buyer controls freight booking and insurance; Agent assists but must not book freight on Buyer’s behalf unless authorized.
CIF / DDP — Agent may quote door-to-door, but include full breakdown; DDP places customs risk on seller/agent — only use if they accept that risk in writing.
Claims handling: require agent to submit proof for any damage/shortage within 7 days of arrival and to handle RMA logistics when necessary.
Don’t treat ESG as marketing. Make it a KPI and audit-trigger:
Require audit frequency: new supplier → 12 months; high risk → 6 months.
Audit types: social (SMETA), environmental, chemical (REACH/Prop 65 compliance).
Remediation timeline: supplier must provide corrective action plan (CAP) within 14 days and close major issues within 90 days.
KPI tie-ins: failure to remediate → triggers PO suspension and potential contract termination.
Clause example (short):
“Material non-conformities discovered in an ESG audit that are not closed within 90 days allow Buyer to suspend orders until remediation or to source elsewhere without penalty.”
Minimum defense plan:
Dual sourcing — always have at least one alternate factory in a different city/region.
Safety stock — maintain 30–60 days of critical SKUs (adjust for lead time volatility).
Emergency PO escalation — define expedited manufacturing fees and lead times.
Insurance — marine cargo and product liability where applicable.
Include an “Emergency Trigger” in contract: e.g., if lead time slips more than 20% for two consecutive POs, Buyer may source emergency production and deduct reasonable costs from Supplier/Agent.
Problem: A mid-sized brand faced 4% delivered defect rate on a new design.
Action: Replaced vague agent agreement with explicit SLA: PSI AQLs tightened, FAI required, weekly production photos, liquidated damages for late delivery. Agent was required to fund third-party re-inspection after two failures.
Result (90 days): Delivered defect rate fell to 0.8%; time to market improved by 12 days because fewer reworks occurred. Lesson: Money + measurement = behavior change.
Problem: An agent introduced a similar product to another buyer; brand found competing product sold in another region.
Cause: No NDA, no IP pledge, no prohibition on agent-led sales.
Consequence: Months of litigation; product recall costs and reputational damage.
Lesson: Clear IP & non-compete terms with remedies are non-negotiable for brand owners.
Week 0–2: Document collection, reference checks, sample & FAI plan.
Week 2–4: Sign trial PO with SLA, choose third-party inspector for PSI, set weekly reporting cadence.
Month 2: Review QA reports, adjust KPIs, schedule audit if risk indicators present.
Month 3: Move to multi-PO cadence, implement scorecard reporting; set backup sourcing if performance < KPI.
Product dimensions & tolerances (per spec).
Functional test results (pass/fail).
Visual defects count and photos.
Packaging integrity & labeling (barcode, country of origin).
Quantity check vs packing list.
Measurement of critical parameters (weight, voltage, seam strength).
“Buyer confirms acceptance of First Article sample (Ref: [sample ID]) on [date]. Production may proceed when Buyer issues written FAI Acceptance. Any deviation from FAI will require re-approval.”
PO number | Item | Plan ship date | Actual ship date | Days late | PSI defects | Action taken | Score
Third-party inspection: SGS, Bureau Veritas, Intertek (or local accredited provider).
Audit frameworks: SMETA, SA8000, ISO 14001 for environmental systems.
Contract & dispute: local trade counsel in Hong Kong / Singapore + arbitration clause.
PO/ERP integration: ensure ordering and receiving records sync with inspection results.
How do I decide between a commission model and fixed fee for an agent?
Use commission for simple buy-and-hold commodities; use fixed fee when you need program management, reporting and predictable cost control.
Can my agent perform all inspections, or must I insist on third-party inspectors?
Agents can do routine checks, but require independent PSI for high-risk products or key first runs to remove conflicts of interest.
What’s an appropriate holdback percentage to protect against defects?
5–10% holdback for 30–90 days is common; calibrate with product risk and cash flow realities.
Do I need to audit every factory every year?
No. Audit frequency should be risk-based: new or high-risk suppliers = every 6–12 months; low-risk = 12–24 months.
What sample size should I use for small lots (<500 pcs)?
For small lots, use 10–20% sampling with 0 tolerance for critical defects and a major AQL no higher than 2.5.
How do I protect IP when the agent claims they “need to show the product to suppliers”?
Use a two-stage disclosure: show non-critical specs initially; sign NDAs and require suppliers to return or destroy design docs after quoting.
If the agent sources cheaper parts but quality falls, who pays?
If the agent substituted parts without approval, they are responsible. Require written approval for any substitution.
What is a sensible escalation path for repeated failures?
Immediate CAP from supplier within 48h; 2) Third-party audit if unresolved; 3) Financial penalties or contract termination if metrics not met after two cycles.
Should I require agents to keep samples on file? For how long?
Yes. Keep master samples for at least 6 months after shipment; for regulated items, retain for statutory periods (check local laws).
When is it reasonable to switch from a sourcing agent to direct factory relationships?
Move when order volumes justify dedicated sourcing, direct audits, and you can manage supplier relationships in local time zones or via an in-house team.
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@Darkhorsesroucing
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