Tens of millions in outstanding receivables! This could be the biggest pitfall in this year‘s chip market...

01 Sequence of Events

According to chat records leaked by chip distributors that have had dealings with Company Y, its modus operandi is fairly straightforward.

Posing as an end‑user, it approaches suppliers claiming stable large‑volume monthly procurement demand. It places several small trial orders and completes normal transactions to build trust. Once suppliers are ready to accept substantial orders, Company Y requests credit terms. When payment becomes due, it defaults on the payment.

To convince suppliers that it is a major client, personnel from Company Y told distributors that its monthly procurement volume ranges from 5 million to 10 million. Moreover, on‑site visit videos and feedback confirm that Company Y does operate its own production lines at its premises.

Even credit terms were stated upfront. Chat records shared by one distributor show that Company Y’s procurement staff cited a standard onboarding procedure for new suppliers: the first order would be paid before shipment, the second paid one week after delivery, while the third order would be subject to net‑30 payment terms.

In records shared by another distributor, Company Y laid out its monthly‑billing rules in great detail: accounts for the current month would be reconciled on the 26th; invoices must be issued by the 10th of the following month; payment would be made at month‑end. Goods delivered on or after the 25th would be carried over to the next month for reconciliation.

In this way, it built up the image of a “reliable” end‑customer with steady demand and standardized internal processes.

In the spot chip market, it is not uncommon for end‑users to request credit terms. Several distributors that had completed real transactions with Company Y noted that the initial orders were relatively small and were paid on time. After several such deals, some suppliers gained confidence in the firm and granted it monthly‑credit payment terms as a natural progression.

News of Company Y’s payment defaults only spread across the industry circle recently. According to lists compiled by industry insiders, more than one‑hundred suppliers are owed outstanding payments.

In hindsight, Company Y’s disguise was never actually foolproof.

Although production lines existed at Company Y’s premises, one distributor who paid an on‑site visit commented that “you could tell at a glance”. In his view, the company had no paid‑in registered capital and was small‑scale. Seasoned sales professionals could spot red flags immediately upon checking what it actually manufactured.

Other distributors reviewing the incident noticed that Company Y set extraordinarily detailed requirements for outer packaging. They argued that genuine end‑customers prioritize product quality rather than outer packaging (except for special‑purpose products). Such excessive focus on packaging appeared rather suspicious.

Data from Qichacha also contradicts its public image. Founded in 2021, Company Y has a registered capital of RMB 3 million and is classified as a micro‑enterprise under the business category of “trade agency”. It had merely one employee covered by social insurance in 2024. An end‑user claiming monthly procurement of several million to over ten million RMB shows up in corporate records as a trading firm with only one staff member.

According to a widely circulated industry summary, Company Y placed bulk orders with numerous suppliers between July and September this year. Payments for these orders became due around October, culminating in the recent wave of defaults.

02 Beware of the “Fatten‑up Scam”

How to Guard Against It?

Company Y’s modus operandi is identical to what the industry commonly refers to as the “fatten‑up scam”.

A so‑called “fatten‑up scam” is a fraud scheme orchestrated from the very moment the perpetrator registers a company. In the early phase, the fraudster conducts legitimate‑looking transactions with suppliers and makes prompt payments. Order values and credit terms are gradually expanded. Some scammers even conduct loss‑making transactions purely to build credibility. Once conditions are ripe, they place large‑volume orders with multiple suppliers within a short timeframe, demanding shipment before payment. Trouble sets in immediately after they take possession of the goods.

We have reported on such scams before. In early 2025, chip distributor Company W disclosed to us that it had been defrauded out of hundreds of thousands of RMB in receivables by end‑user manufacturer Company B.

Prior to formal cooperation, Company W had conducted an on‑site inspection of Company B’s office premises and factory and observed nothing amiss. After monthly‑credit terms were agreed upon, payments arrived on schedule for the first two months. Defaults then became frequent, until Company B vanished completely.

Company W later learned it was not an isolated victim; numerous suppliers had been defrauded in succession. Beyond withholding payments, Company B resorted to a “buy high, sell low” tactic: it purchased goods at prices higher than suppliers anticipated, then offloaded them at cut‑throat rates to siphon off cash flow.

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> Report title: Beware! Another Elaborate Chip Distribution Fraud

Both Company B and Company Y share one thing in common:

Payments made in the early‑stage transactions were merely costs incurred to gain trust. The goods obtained on credit in subsequent credit‑term orders were their real target.

How to guard against such risks?

● For new customers, avoid offering credit terms whenever possible. Payment‑before‑shipment is the more secure practice. If credit must be extended, require a deposit of a certain percentage.

● Smooth performance on the first few orders is no reason to let your guard down. Heighten vigilance when the customer suddenly ramps up order volumes and requests substantial credit limits.

● Verify the counterparty’s corporate information before extending credit, and keep monitoring any changes even after credit is granted. Seek feedback and industry references from peers. Where feasible, leverage bank‑led vetting services.

● Strengthen risk awareness among sales staff, and implement strict review procedures for credit‑term applications.

The “fatten‑up scam” keeps reappearing under different corporate guises, yet its playbook never changes. The more attractive the terms offered by the counterparty, the more you should question the rationale behind them. After all, extending credit is easy, but collecting outstanding payments can be extremely difficult.