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Q We are a UK-based engineering company supplying the Chinese market. One of our customers is refusing to pay (a low five figure sum). What advice can you give on the recovery of this debt?

A Debt recovery in China, particularly for smaller sums of money, can be a difficult and time-consuming process. Debt collection services, by law, must be carried out by local Chinese law firms and the costs of such actions may prove to be prohibitive. While debt collection agencies do still exist, law firms and arbitration advisors remain the only viable resource when a debt needs to be recovered.

Standard procedures adopted by law firms will be to send demand letters, contact the company and seek to make arrangements to negotiate the payment. Typically, these actions are successful in less than 50 per cent of cases. Further action usually takes one of two forms: arbitration or litigation.

It is essential to act quickly. Chinese law has a statutory limitation of two years on debts and, depending on the nature of your contract it may already be many months since you first signed your agreement. The success of recovering a debt which has been outstanding for more than one year declines substantially.

To prevent this kind of situation in future, due diligence is essential. Relatively simple procedures such as CBBC’s Company Registration Report will confirm important information about the company. More in-depth due diligence can be carried out by a service provider listed in the CBBC membership directory.

Question answered by Michael McCourt. For more advice on debt recovery, contact michael.mccourt@cbbc.org.cn

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