01Why a PI is not a contract
A PI is a formal quote from seller to buyer, used to open an L/C, clear customs, or trigger an internal AP wire. It is fundamentally a commercial document, not a legal one.
Even with both chops on it, a PRC court frequently treats a PI as a letter of intent, because:
- It is missing core contract elements (breach remedies, dispute resolution, venue).
- Clauses are described far too loosely (e.g. quality "as per sample").
- It does not specify what the supplier owes you when it breaches.
So when the factory slips a month: you file with the PI, the judge asks "show me the contractual basis for your damages number" — the PI does not have one, and you collect nothing.
02The 12 traps that hide inside a typical PI
- 100% T/T in advance: Money is gone, leverage is zero. Move to 30/70 or 30/40/30.
- "Delivery: approximately 30 days": "Approximately" = no liability. Replace with a hard ETD plus 0.30% / day LD.
- "Quality as per approved sample": The sample is gone, batch variation is normal. Use AQL 2.5 / 4.0 with ANSI Z1.4 sampling.
- No inspection right: Without it, the factory can refuse your team or a 3rd-party inspector at the gate.
- No remedy for non-conforming goods: Pick one and write it: full lot return, factory-borne rework, or proportional price reduction.
- No tooling ownership: Paying the tooling invoice does not equal owning the tool. Spell out physical ownership and 30-day release.
- No IP / NNN: Drawings, designs, and derivative improvements belong in a separate NNN — not buried in a PI.
- No LD: "Handled per law" in a PRC court = nothing. Write specific % and caps.
- No force majeure definition: Factories love "pandemic / power rationing / containers" as an excuse. The contract must define what does and does not count.
- No labeling / packaging liability: Wrong label = US Customs hold or IP claim. Whose loss it is must be written.
- No venue / arbitration: Missing this one effectively voids the rest. Use CIETAC + factory-local court (two-track).
- No language priority: Bilingual contracts must say "If English and Chinese diverge, ___ controls".
03Do not delete the PI — make it an annex to the master contract
"Can I just use the PI as the contract?" — No. Instead:
- Keep the PI for bank, customs, and internal AP workflow.
- Sign a separate bilingual Supply Agreement that covers all 12 traps.
- Cross-reference: each PI says "This PI is order #N under master contract ___"; the master contract attaches the PIs as exhibits.
Result: commercial workflow stays smooth, legal coverage is complete, and when something breaks you put the master contract — not the PI — on the table.
04Quick check: how many traps are in your PI?
We built a 17-point PI / contract self-check that runs in 5 minutes. Questions include:
- Is final payment tied to passing inspection?
- Is daily LD in the 0.30–0.50% band?
- Is PRC venue / arbitration explicit?
It returns the exact gaps you have to close to actually win in a PRC court. Run the 17-point check on the main page →
These clauses only bite when they sit inside a bilingual agreement a PRC court will actually enforce. We give you the 17-point risk self-check, the LD sweet-spot calculator, and the PI vulnerability scanner.
Try the three tools on the main pageFAQ
Q1. The PI has the company chop and a director signature — that’s not a contract?+
PRC courts judge contract formation by completeness, not by chop. A PI without LD, venue, and dispute clauses is regularly treated as a letter of intent, chop or no chop.
Q2. Our orders are small — a full contract feels heavy. Alternatives?+
Use a "framework contract + PI rolling orders" model: one bilingual framework agreement covers all common clauses; each PO is just a PI with SKU, qty, price, ETD that inherits the framework.
Q3. The factory says they "never sign contracts, only PIs". What now?+
"We never sign" is almost always sales-speak. Run the first PO on their PI, draft a bilingual framework in parallel, and sign before PO #2. If they refuse outright, that is a hard signal — walk.
Q4. We already paid and the goods shipped. Can we still backfill a contract?+
Yes, but with less leverage. (1) Land this lot. (2) Insist on a framework contract before the next PO. (3) Add "applies to all orders from the date of this agreement" so it covers forward volume.
More in this series
An NDA only blocks disclosure. An NNN also blocks copying and back-door selling to your customers. In PRC courts, that gap is the whole game.
Once the tool sits in their plant, leverage flips. How to draft it right up front, and how to claw it back when the factory refuses to release it.
Write the LD too high and the judge cuts it down. Too low and you collect nothing. Here is the 0.30–0.50% per day sweet spot and how it is derived.