Debt collection in China refers to the pursuit of payables from business partners based in China.
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.
You may have purchased goods from Chinese manufacturers, but now you want to terminate the transaction and a refund of advance payment, or you have provided goods or services to Chinese clients but they fail to pay you.
So, you want your Chinese business partner to pay the amount due.
The first step in the process is to properly express your request to get paid to your Chinese business partner.
You may also need to hire an outside service in China to collect your debt. Because the chances are that you can neither fluently communicate with your Chinese partner in Chinese, nor go to China personally to complete these tasks; besides, you don’t understand Chinese law.
International debt collection can be a complex, drawn-out process, particularly when you don’t understand Chinese, can’t come to China, and know nothing about China’s legal and judicial system.
However, you can make it less overwhelming and more efficient by following these three tips:
I. Choose the right local collection partner
If your Chinese business partner continues to avoid paying its debt, explicitly refuses to pay or simply ignores your payment request, you may be overwhelmed. At this time, you will have to consider hiring a special agency to collect your debts in China.
You can find debt collection agencies and lawyers with appropriate experience in international debt collection. Many collection agencies claim that they can collect debts around the world because they have branches or partners in many countries, including China.
However, you can also consider hiring a local Chinese collection agency not only because it has more experience in collecting debts in China, but also because you can directly get the feedback of Chinese debtors through it.
II. Choose an agency with collectors and in-house lawyers
You need to consider and be prepared for potential legal actions when making amicable collection.
The first thing you need to consider is to let the collector conduct an amiable collection for you considering the low cost and efficiency.
Although amiable collection works most of the time, no one knows whether legal action will become the last resort.
Therefore, on the one hand, the collector needs to, during the amicable collection, inform your Chinese business partner of the cost-benefit of repayment in the amiable collection and in the litigation, so as to procure it to take the initiative to repay the debt.
On the other hand, the collector also needs to collect evidence for litigation during the amicable collection, because in Chinese litigation, you should present all the evidence required to the court. For more information, please read our earlier post ‘What Evidence Strategy Should You Adopt in a Chinese Court?’.
An agency with both collectors and in-house lawyers can better complete these tasks.
III. Nip the collection in the bud
The collection will not only affect your financial liquidity, but will also cost you more during the collecting process. Therefore, nipping the collection in the bud would be the most important thing to do.
So, you need to pay attention to the following three points:
- Be sure to verify or conduct due diligence on your Chinese business partner before conducting transactions with it.
- Sign an enforceable contract with your Chinese business partner, especially when the collection will occur in China, please make sure that the contract is enforceable in China.
- Terminate a suspicious transaction as soon as possible, so as to avoid more overdue payments by your Chinese business partner.
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Contributors: Meng Yu 余萌