Distributors’ shops on online sales platforms are important assets for debt repayment.
This post was first published in CJO GLOBAL, which is committed to providing consulting services in China-related cross-border trade risk management and debt collection. We will explain how debt collection works in China below.
One of our clients in France signed an Exclusive Distribution Agreement with a distributor in China, agreeing that the Chinese distributor sold its women’s skin care products in China.
The distributor is based in Hangzhou, China, the “capital” of Chinese e-commerce. In Hangzhou is home not only to e-commerce giants like Alibaba, but also to many distributors who use e-commerce channels to sell products.
According to the Exclusive Distribution Agreement, the first order will be prepaid in full by the Chinese distributor. or subsequent orders, the Chinese distributor can receive all the goods under the order after paying 10% of the order price, and then pay the remaining 90% within 180 days after receiving the goods.
The cooperation between the two sides lasted three years. From the first half of 2022, the Chinese distributor told the French seller that it could not sell all the goods on the remaining orders within 180 days, and therefore, it could not pay the balance to the French seller.
As a result, the Chinese distributor failed to pay the balance of the remaining three orders, totaling USD 210,000, to the French seller on time.
The French seller entrusted us to collect the balance and investigate the Chinese distributor’s actual sales .
Through our investigation, we understand that the sales channels of the Chinese distributor are mainly online sales platforms such as Taobao, JD.COM and VIPSHOP, with no offline channels such as supermarkets and shopping malls.
We then obtained its sales data on online sales platforms through a third-party investigation agency. Based on the analysis of such sales data, we found that the Chinese distributor has sold 80% of all products of the foregoing orders on e-commerce platforms.
This means that the sales of the Chinese distributor are doing fine, and there is no chance that it could not make the balance payment.
In addition, we also entrusted a third-party agency to value the Chinese distributor’s online stores. According to the weight of such online stores on the online sales platforms, such stores are valued at about CNY 2.4 million (about USD 350,000).
Therefore, on behalf of the French seller, we communicated with the Chinese distributor that:
If it fails to make the balance payment on time, we will have to take legal action and freeze its online stores, including the sales revenue from these stores. This means that the Chinese distributor will lose such online stores worth USD 350,000 for failure to pay USD 210,000 on time.
Eventually, the Chinese distributor agreed to pay the balance.
For Chinese online distributors, their online stores are the main resource of debt repayment.
If a distributor makes efforts to get the online sales platform to givet its online store with sufficient weight through advertisement and long-term reputation building, the store will be of a relatively high commercial value. Therefore, the online store is an important asset for debt repayment.
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Contributors: CJO Staff Contributors Team