What Foreign Businesses Need to Know if They Have to Collect Debt in China

By Atradius Collections, PRNE
Wednesday, January 26, 2011

AMSTERDAM, January 27, 2011 - Trade with China has many anomalies which aren't obvious to Western
businesses, creating financial challenges. This is particularly true in the
case of debt collection which officially does not even exist in China.

China has had a vivid history around debt collections, which therefore
were prohibited by the Chinese government in the late 19th century. The
regulation is still in place and whilst debt collection doesn't officially
exist, companies in debt collections will register themselves as "risk
management" businesses or "credit consultants. International debt collection
agents may collect foreign debts owed to Chinese companies, but only legal or
authorized bodies, such as specialised legal firms may collect Chinese debts.

The list of documents required to implement a collection are extensive.
Terms and conditions for supply of goods and services must be set before an
order is accepted. The process must be controlled via a comprehensive
document chain, such as purchase orders, delivery notes and invoices. These
should be in writing in order to provide evidence.

Aside from considerations of currency exchange, local knowledge, taxation
and legal systems and labour regulations, businesses will face unexpected
challenges when collecting in China. "Filed data on businesses is not
necessarily accurate because corporate auditing is not always reliable -
local credit investigations are resourceful but because there are no
standardised criteria the quality of work from one service to the next varies
enormously," says Tony Au, from Atradius Collections who is based in Hong
and responsible for the business in China. "Additionally, the expansive
geographical area can also prove a challenge, especially as debt collections
are often done face-to-face."

A different set of attitudes govern Chinese business and these manifest
themselves clearly in the approach to credit management and debt. "Losing
face," is still a major issue for Chinese companies, and bankruptcy is still
treated as something dishonourable.

Western businesses should know that the success rate on overall debt
collection in China stands at an estimated 30%. In general, the limitation of
action regarding applications to a people's court for protection of civil
right under general trading is two years; and for some exceptional
international purchasing contracts is four years. This means after the
stipulated period (counting from the last demand date but not the original
due date), the creditor cannot file a claim under the jurisdiction system.

Due to the challenges and risks, a route forward is to make sure to have
trusted local support. Resources such as international business organisations
or chambers of commerce help establish Western businesses with legal and
credit management contacts and explain how the foreign system works. A
successful option is engaging a dedicated debt collection service with
experience in collecting Chinese debt.

Larger internationally based collectors like Atradius Collections, have
offices in Hong Kong which has the advantages of being exempt from Chinese
mainland regulations but sharing the same language, culture and time zone and
use trusted Chinese partners, ensuring a greater chance of success in
collecting debt in China.

About Atradius Collections:

Atradius Collections, a business unit of Atradius Group, provides
efficient, quick and flexible solution to recover domestic and international
trade debts. With a global network of collections specialists, lawyers and
insolvency practitioners worldwide, Atradius Collections serve over 14,000
customers handling on average 100,000 cases a year. Over 80 years of
worldwide credit management industry experience uniquely position Atradius
Collections as a global leader in business-to-business debt collections. For
more information, please visit: www.atradiuscollections.com

Press Contact: Corinna Lohse, Phone: +31-20-553-3028, Email: corinna.lohse at atradius.com .

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