Owed A Little Money By A Chinese Company? Good Luck With That.
Just about every week, we get a call from an American company that has paid anywhere between $5,000 and $50,000 for product from a Chinese company and received either nothing in return or product that clearly is not up to snuff.
They want to know what they/we can do.
In virtually all cases, the U.S. company has never seen the Chinese company to whom they wired the funds and, in most instances, the Chinese company has stopped responding in any way to the American company.
They want to know what they/we can do (I am repeating this for effect!).
Many of them have already reported the Chinese company to either the Chinese Embassy in the United States or the United States Embassy in China and received no succor.
They want to know what they/we can do.
They often have a vague notion that we can get some embassy somewhere to come down hard on the Chinese company or, if not, that we can sue them somewhere and bring them to heel.
The following is my typical response is as follows:
We will review all documents in your case and write a demand letter in Chinese to the Chinese company. This works less than half the time. Your other alternative is to find a lawyer in [the city in which the Chinese company is located] who speaks English and will sue (good luck with either of these) and then pay that lawyer and court fees. Or you can spend way more than the amount at stake warrants and sue in the United States and then try to attach any assets this Chinese company might have in the US. You might also try to find an international debt collection agency to take this on, but my understanding is that can be pretty difficult.
In other words, it is not looking good for you right now and maybe the best thing you can do is mark it down to experience. If the US/Chinese embassies/consulates did anything on these sorts of cases, that is all that they would be doing because my firm alone gets at least two of these a week.
BOTTOM LINE: Don't let this happen to you.
Comments (6)
Read through and enter the discussion by using the form at the endoutcast - August 19, 2010 10:59 PM
Any suggestions on preventing said situation from occuring in the first place?
Twofish - August 20, 2010 2:07 AM
As far as how to avoid having this happen to you.....
Instead of talking to a lawyer after something goes wrong, it's a lot easier and faster to talk to a local banker *before* you send money over. There is a standard procedure involving letters of credit and payment by documents that are used in international trade, and your friendly neighborhood banker can set all of this up.
What the basic procedure is that you have a local bank issue an irrevocable letter of credit to the sender of the goods, and that letter of credit gets paid only when you send over documents that the goods have been received. One of those documents is a certificate by a third party that both of you have selected beforehand have indicated that the goods are according to specification. There is an equivalent set of machinery at the other end to make sure that the person at the other end doesn't get stiffed.
One really good introduction to all of this is....
http://www.amazon.com/International-Business-Transactions-Nutshell/dp/0314195211/ref=pd_sim_b_1
One other thing is that all of this is pretty standard so that you can go into any bank with international presence and they'll point you to the right person to arrange this. One big warning sign is if the person at the other hand refuses to handle things according to normal business procedure, in which case you need to take your business elsewhere.
Renaud - August 20, 2010 8:29 PM
I agree with twofish--a letter of credit is usually effective, when one of the terms asks for a certification of passed quality control (issued by an inspection firm that you nominate in advance).
But there are many other tools (due diligence, OEM contract, in-process inspections...). Most importers pay by bank wire and many of them do just fine.
Michiel V - August 20, 2010 11:05 PM
I suppose you cannot refer them to for example the good Dr Ibrahim Abubakar or any of his friends [Editor's Note: A name sometimes used on 419 scam emails] , who as we all know (or don't know, as it is a secret just for you to know) can help you recoup a great sum of money, if only you send him your address details, DOB, mother's maiden name, bank account number and PIN code....
A summary less eloquent than Twofish' and Dan's:
Plan A: do your homework and don't get scammed.
Plan B: get scammed, get over it, and try to not get scammed again (see plan A).
The Regulator - August 24, 2010 6:04 AM
Is there anything beyond Due Diligence and a good contract that we can do to avoid these sorts of problems?
Michael Zakkour - August 26, 2010 10:31 AM
Great post Dan.
If only we could get those people calling you to talk to me before they have to talk to you.
In ten years of sourcing and manufacturing goods in China we have had exactly one instance where what was shipped didn't meet final specs and in that case we aborbed the hit on behalf of the client.
For start-ups, entrepreneurs or SME's one of the smartest things you can do is to engage a qualified China sourcing and manufacturing services company to manage China for you. You get the experience, wisdom, expertise and strong local management you need and in most cases we can get a better factory price than the average company waltzing into China for the first time.
To ensure successful production some simple do's and don'ts:
-Do Not place an order through Alibaba or any other online portal
-Do Not place an order without having someone from your organization or working on behalf of your organization meet management, inspect the factory, go over QC protocols and 25 other details that need to be checked.
I see things in factories (having been in thousands) that the average buyer does not see. For instance, ask the manager what his top three export markets are. He may tell you US, Western Europe and Japan.
He will tell you this so that you believe they are used to the quality standards, procedures and needs of developed markets.
After the factory tour then ask him if you can inspect the warehouse and trucking platforms. Often you get back there and the shipping marks on the carton will read Cost Rica, Poland, or Zimbabwe. Big red flag.
Another example is that we actually do due dilligence on the factory's domestic supply chain. Most problems start at the component part level. Make sure the factory is working with reliable subcontractors and not just buying cheap components because his cousin owns the factory.
DO - Invest in strong local management
DO - Have inspections during and post production
DO NOT - Wire balance before final inspection of goods
DO NOT - Rely on a single "fixer" "agent" or "foreign trade assistant" in China. If they disapear, so may your money and your project.
DO - Only work with sourcing companies who give you full transparancy on suppliers, prices etc. YOU should own those relationships while the sourcing firm can create and manage them for you.
I could go on but I'll stop here.