Our company regularly buys goods from China and maintains a pool of  suppliers who are either factories or trading companies. Although we have been doing business with these companies for a number of years, most of them still require a certain amount of deposit before they proceed to the production of our order. From the time advance deposits are made, it usually takes these suppliers 1 to as long a 3 months before our orders are eventually shipped.

I am a bit concerned with this kind of set-up because there have been plenty of companies in China going under the last few months owing to the financial crisis. The possibility of us sending a deposit and the company going bankrupt while within the production period is a possibility. One of my friends had told me about this exact situation happening to them.

Naturally, none of these suppliers would admit that their company is "shaky" and would always say that they are stable firms.

Now my question is " How could importers avoid this situation?"  I have considered using L/C's but the cost is too high.

I think that LC's might be the quickest and cheapest way to solve your problem.

You could of course commission a company to look into the accounts of the seller on your behalf 'D&B' style but that would no doubt cost you a lot and may not protect you 100%.

Your concerns are very valid as even some very big and long standing factories go under without any notice and you would lose any cash deposit you had paid in those cases.

Factories shut down, what another situation would be?

Your topic question is exactly same situation as I posted the above topic, and it is another situation bellow financial crisis.

Here is a way:  we should know situation of the factory before order, if possible, send one to visit them usually when your order is under production.

Anyway, LC is the best choice for avoiding this problem when factory shut down.