Chinese sellers chase overseas debt defaulters (2)

08:47, October 29, 2010      

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Often, getting the help of a debt collection company is the last resort. Dunton said Chinese companies do not generally use debt collectors until two or three years down the road.

Kate Zhang, controller at STA International, said that due to the low profit margin for exporting companies, they hesitate to use debt collectors. Also, when the debtors are so far away, they think it will be "pointless".

"Many Chinese companies think if they give their debtors more time, they will pay up," she said.

"But often, the debtors just keep pushing for time. That's why a lot of debts we get from China are two to three years old.

"They would try everything they can to collect the money themselves. When they come to us, it could be too late. The debtors could be out of business."

Hart said there is no chance of recovering the money owed if the age of the debt is beyond the statute of limitation, and in the US, that varies from state to state. In California, a creditor has four years to sue a debtor, provided there is a written contract or agreement. If it is a verbal agreement, a creditor has two years to sue.

"If a manufacturer in Hunan province ships goods to a company in Orange County in California and has not been paid, it has got to sue in Orange County," Dunton said.

If a contract has not been signed between the two parties, invoices, bills of delivery, purchase orders and even an e-mail can be used as evidence.

Hart said verbal agreements or phone orders are considered legally binding.

He said his company's rate of successful debt recovery is 90 percent. As long as the companies are in business, there is a good chance of recovery. But if the company is out of business, there is zero chance.

But sometimes US debtors do not want to pay up because they think China is too far away. "They won't even respond until a lawsuit comes," Dunton said.

"Some companies fight back with a lawsuit, just to scare them. But at this stage, Chinese companies are not afraid. They just want to get back their money."

Sceptre Group deals with a minimum of 30 lawsuits a month, Dunton said. The company charges 50 percent of the claim as a fee, regardless of the cost of the lawsuit. Claims from the Chinese companies range from $60,000 to $200,000.

Dunton said his company has a straightforward debt collection policy.

"Once we get a claim from our client, we send a letter to the debtors and give them 30 days," he said.

"We will follow up with one or two phone calls. If they don't pay or don't respond to us, we file a lawsuit right away. We don't waste time. We don't play games."

Dunton said the debt collection practice in China is different. In China, debt collectors like to meet debtors and negotiate with them. That often produces good results in China, but it will not work in the US.

"In the US, it will be letters and phone calls. If there is no response, it means they don't care," Denton said.

STA International said Chinese creditors should hire debt collection agencies as soon as possible to increase their chances of recovering the money.

Unfortunately, many Chinese companies do not trust debt agencies, Zhang said.

"People in China think it's a mafia industry. They think debt collection agencies will collect the money and run away with it," she said.

In contrast, US companies hire debt collectors as soon as the debts are three months old.

Lonetto said STA hopes to expand its Asian operations, "but it's a long way down the road. It's a slow growth process because it is also an educational process".

Source: China Daily
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