Imagine if you buy goods from a Chinese supplier, but the deal fails and the Chinese supplier should return you the advance payment.

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.

Or, you export batches of goods or services to China. The invoice is due but still unpaid by the Chinese buyer.

You decide to seek advice from third-party professionals, i.e. debt collection agencies or law firms. Such third-party agencies are commonly known as debt collectors.

But as your debtor is in China, you clearly desire to know where you should go for help. In particular, you are not too keen on making a trip to China simply for this matter, especially when the COVID 19 pandemic is interfering with international travel.

So, what is the process of debt collection?

We first need to know the process of debt collection in China: Amicable mode — > Legal Action — > Enforcement.

It is no different from collecting debts in any other country, including your own country.

You need to have a debt collector who specializes in collecting debts for international clients in China to provide you with services at the three above-mentioned stages.

Of course, it’ll be better if the debtor pays as early as possible. In that way, you don’t have to go through all three stages. Because the more stages you go through, the more time and money you spend, and the more emotional pain you suffer.

So, let’s go through these stages step by step.

1. Amicable mode

At any time, the debt collector will try the amicable mode first. It means the collector has to convince the debtor to pay you what he/she owes you. This is the cheapest way, so it should be the first choice for you.

The debt collector needs to accept and get your authorization to start taking action.

The debt collector needs to understand the business practice of Chinese suppliers in order to see their excuses and force them to make payments.

They should also have a good understanding of Chinese laws so as to collect debts in legal compliance.

2. Legal Action

What if the debtor still fails to pay in amicable mode?

You may need to consider taking legal action further, which means that you will have to file a lawsuit with the court, and the court will confirm by a judgment that the debtor owes you money.

You need to consider two issues:

Firstly, is there any dispute?

If there is no dispute over whether payment should be made, the lawsuit will not be too complicated.

If there is a dispute, the lawsuit will be more complicated. The debt collector needs to be in court to ask a judge to reach a conclusion on the issues below: Are the goods or services up to standard? Is delivery delayed? Are conditions for refund/payment satisfied?

Therefore, if there is a dispute, it is not simply about debt collection, but a trade dispute. For more details, please read an earlier post “The Difference between Debt Collection and Trade Disputes”.

Secondly, where to sue?

If there is no obstacle over jurisdiction, you need to consider which court you should bring an action to, a Chinese court or a court that you are familiar with.

For how to make a choice, please read an earlier post “Suing in China vs Suing in Other Countries: Pros and Cons”.

3. Enforcement

What if you win your case, but the debtor still refuses to pay?

You need to apply for the enforcement of the court judgment. You need to enforce the judgment at the location of the debtor or his property. Usually, it is in China.

So you need to apply for the enforcement of the court judgment in China.

Please note that Chinese courts are highly likely to enforce judgments made by foreign courts. For a more detailed discussion, please read our post “Guidelines for Enforcing Foreign Judgments in China 2022 ”.

Photo by Vince Russell on Unsplash

Contributors: Meng Yu 余萌

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