How to Collect Debt from a Chinese Company

A Chinese company owes you money and won't pay. It's a frustrating situation that many foreign businesses face. Here's a practical guide to your options for recovering what you're owed.

Before You Begin: Assess Your Situation

Before spending time and money on collection efforts, honestly evaluate:

• Do you have documentation? Contracts, invoices, delivery receipts, communications
• Is the debt disputed? Or does the debtor simply refuse to pay?
• Does the company have assets? Collecting from an empty shell is pointless
• How much is owed? Collection costs should be proportionate to the debt
• Is the company still operating? Check their business registration status

Step 1: Direct Communication

Start with direct contact. Sometimes non-payment is due to cash flow issues, disputes, or simple oversight rather than bad faith.

• Send a clear written demand with a deadline
• Offer to discuss payment plans if appropriate
• Document all communications

Step 2: Formal Demand Letter

If informal contact fails, send a formal lawyer's letter. This signals you're serious and often prompts payment or negotiation. The letter should:

• Clearly state the amount owed and basis for the debt
• Set a deadline for payment (typically 7-14 days)
• Warn of legal action if payment isn't received
• Be sent via traceable delivery method

Step 3: Litigation or Arbitration

If the debtor still won't pay, you'll need to pursue legal action.

Check Your Contract

Your contract's dispute resolution clause determines your options:

• Arbitration clause: You must arbitrate, not litigate
• Court jurisdiction clause: Sue in the specified court
• No clause: Generally sue in Chinese court where defendant is located

Litigation Process

1. Prepare and file complaint with supporting evidence
2. Court accepts case and serves defendant
3. Defendant responds
4. Court hearing(s)
5. Judgment

Timeline: Typically 6-12 months for straightforward cases.

Step 4: Enforcement

Winning a judgment is only half the battle. You then need to enforce it.

Enforcement Measures in China

• Bank account freezing and seizure: Most common and effective
• Property seizure and auction: For real estate and equipment
• Credit blacklisting: Debtor added to "dishonest persons" list
• Travel restrictions: Legal representatives may be banned from flights and high-speed trains
• Business restrictions: Cannot register new companies, bid on contracts, etc.

Alternative: Asset Investigation First

Before investing in litigation, consider investigating the debtor's assets. There's no point winning a judgment against a company with nothing to seize. A lawyer can help conduct:

• Company registration and shareholder searches
• Property ownership searches
• Bank account inquiries (limited without court order)
• Business operation assessment

Costs and Considerations

Debt collection costs in China include:

• Court fees: Percentage of claim amount (relatively low)
• Attorney fees: Varies; often contingency or hybrid arrangements available
• Document preparation: Notarization, legalization, translation for foreign documents
• Enforcement fees: Additional costs if enforcement is needed

Prevention for the Future

1. Conduct due diligence before extending credit
2. Use clear written contracts with dispute resolution clauses
3. Consider requiring deposits or letters of credit for large orders
4. Monitor payment patterns and act quickly on delays
5. Build relationships but verify