Common Frauds by Third-Party Manufacturers Every New Entrepreneur Must Know
When you are new to the business world, third-party manufacturing looks like the fastest way to launch products. Whether it’s food supplements, nutraceuticals, cosmetics, or packaged goods, outsourcing production saves time, money, and infrastructure costs. But along with the benefits comes a big risk – fraudulent practices by unethical manufacturers.
Many entrepreneurs, eager to launch their first product, fall into traps because they lack knowledge of industry standards, certifications, and quality checks. They jump into manufacturing agreements without proper due diligence, only to later face losses, damaged reputations, or even legal battles. To protect your investment and brand reputation, you must be aware of the most common frauds that occur in third-party manufacturing.
Key Frauds Every New Entrepreneur Must Know
Let’s break down the key frauds every new entrepreneur must know:
1. Advance Payment Scams
Some manufacturers ask for a large amount of money in advance before starting production. After getting the money, they either delay the work, give low-quality products, or in the worst case, stop responding and disappear. Many new business owners fall into this trap because they are in a hurry to launch their product.
How to stay safe:
- Don’t pay the full amount in advance
- Pay in small steps as work moves forward
- Use safe payment methods like bank guarantees or escrow accounts
2. Manufacturing Without Approval
Some manufacturers make their products without taking permission from important authorities like the FSSAI (Food Safety and Standards Authority of India). If you sell such products, you can get into big legal problems. For example, food and health supplement products must have an FSSAI approval number, but some fraud makers skip this step to save money and time.
How to stay safe:
Always ask for FSSAI approval certificates before they start making your product.
3. Using Non-FSSAI-Approved Labs
Every food or supplement product must be tested in proper government-approved labs before it is sold. But some manufacturers try to save money by using fake or unapproved labs and give false reports. This means the product may not actually be safe for people.
How to stay safe:
Always check if the testing lab is NABL and FSSAI approved. Only reports from these labs can be trusted.
4. Contamination in Products
One big problem with third-party manufacturing is contamination. This happens when products are made in dirty factories, stored badly, or mixed with other batches. Such products can be unsafe for people’s health and can also damage your brand’s name very quickly.
How to stay safe:
Get your products checked randomly in good labs to make sure they are clean, pure, and safe to use.
5. Low-Quality Raw Materials
Some manufacturers try to save money by using cheap or fake raw materials instead of the good-quality ones they promised. For example, instead of using real herbal extracts, they may mix in powders or fillers that look similar but don’t work. The product may look fine from the outside, but it will not give the results you expect.
How to stay safe:
Always ask the manufacturer for proof of raw material purchase and quality reports. If possible, get the materials tested in an independent lab before large-scale production.
6. Non-Food Grade Packaging
Some manufacturers save money by using cheap bottles, jars, or wrappers that are not safe for food. These low-quality materials can release harmful chemicals into the product and make it unsafe for use. Food and supplement products should always be packed in food-grade certified packaging, but not every manufacturer follows this rule.
How to stay safe:
Always check and approve the packaging before production. Ask the supplier for a food-grade safety certificate.
7. Wrong or Incomplete Labels
Every product must have a proper label that shows the right information, like ingredients, nutrition details, FSSAI number, date of manufacturing, and expiry date. Some dishonest manufacturers skip these details or give wrong information just to save money. This can confuse customers and also break government rules.
How to stay safe:
Always check and approve the labels yourself before printing. Make sure they follow the rules given by FSSAI.
8. Manufacturing of Unsafe or Banned Products
Some companies manufacture products that are not safe for human use, such as bodybuilding supplements or energy boosters that give a sudden, artificial effect. Many of these products are banned by government authorities because they can cause serious health risks. Unscrupulous manufacturers still make and sell such products to earn quick money, but using them can lead to legal trouble and damage your brand’s reputation.
How to stay safe:
Always check whether the product formula is approved by FSSAI, AYUSH, or other relevant authorities. Avoid manufacturers who promise “instant results” or use banned substances. Get every formulation tested and certified before going to market.
9. Expired or Fake Raw Materials
Some dishonest manufacturers try to save money by using expired or fake raw materials. This is very risky, especially in food, medicine, and supplements, because it can make products unsafe or useless.
How to stay safe:
Always ask for proper proof (Certificate of Analysis) that shows the raw materials are fresh and genuine. Also, make sure the supplier is trusted and reliable.
10. Quantity Fraud and Short-Weighting
Some manufacturers engage in fraud by providing less product than what you paid for. This can happen in a couple of ways:
- Shortage in Count: A company may deliver fewer items than ordered—for example, sending 480 bottles but billing you for the full 500 you requested.
- Short-Weighting/Short-Filling: A manufacturer may pack less than the stated weight, such as delivering 480g instead of the promised 500g per unit.
While these differences may seem small per transaction, these practices lead to significant financial losses for the buyer over time.
How to stay safe:
Check random pieces during packing. Count them and weigh them to be sure.
Conclusion
Third-party manufacturing is a powerful tool to save time and money, but only when partnered with the right manufacturer. Many new businesses fall victim to fraud, including being trapped by advance payments, receiving low-quality raw materials, getting unsafe products, or facing issues like fake lab reports and wrong labelling.
To safeguard your business, your brand, and your customers:
- Always verify essential certifications such as FSSAI, NABL, and GMP.
- Insist on independent third-party lab testing for every batch.
- Execute a comprehensive written agreement detailing quality standards, timelines, and penalties for non-compliance.
- Never rely on verbal promises—get every critical detail in writing.
By remaining careful and alert, you don’t just avoid losses; you build a foundation of trust and quality that defines a successful, enduring brand.
