Managing Your Receivables in China

Tuesday, September 9, 2008 2:58
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My first job out of university was based in San Francisco, and one of the largest things I managed was the APAC accounts receivable.  It was in the beginning a frustrating process as I was essentially making collection calls to get people to send their checks, and I felt a little bit like a repo man.

However, after 9 months I had essentially worked out a system.  I had learned all the little tricks people play and begun to develop process surrounding that.

For one client it mean literally photocopying the catalog of items they had ordered and making sure the pages were in the  same order as the items were listed on the invoice.Not sure why an accountant needed it, but once they used that as an excuse for paying 30 days late, I made sure that future invoices were sent with the documents as a proactive measure – and it worked.

for others though, it was much easier.  They were not receiving the bills (that does really happen), or their payment terms were not inline with ours  (offering a discount can align that), or sometimes they had 3-4 layers of signatures before something could be paid.

In the end though, what I learned was that it is all a process and that by following a process everything will usually resolve itself in a timely manner.  Something that the recent article Dealing with Late Payments suggests.

Of course, sometimes things do not go as planned and payment can be dragged out over time into the 180+ column quickly (especially in China) and the only question then is what tools can be used to bring the money in and clear the account.

The article mentions 10 ways that would work in the UK, and I have put in a few notes on my thoughts on the first 5 of these:

1. Decide whether it is worth a fight –

True in China.  Often times, you can spend a lot of time and money fighting something in China, and if it takes you an hour to get a train ticket perhaps the 1000 RMB past due isn’t worth pursuing if the counterparty is a massive SOE

2. Consider your customer. If it is a valued customer, be diplomatic in your approach. If it is a one-off customer, you can be more assertive.

True in China – Regardless of whether a foreign or Chinese firm, processes can be very different than back home.  multiple levels of signatures may be needed, fapiaos need to be issued and received, and money may need to be moved around.

The more you know, the better off you are.

3. Assess why the customer has refused to pay.

True in China – invoice may not have been received, product may have gone missing, CFO may be on maternity leave, etc.  There are sometimes valid reasons for why an invoice may not have been paid, and it is best to explore the possibilities before bringing in the muscle

4. Consider a debt collection agency.

Not Yet in China – To date, I have yet to heard of an agency (yes, they exist) in China that has a solid track record.

5. If you opt for debt collectors, ensure you make checks before using an agency.

True in China – If hiring an agency were possible, assessing their credibility and method of collection is critical

In China, collecting on debt can still be quite dirty.  I have some friends who have been forced to call mayors to get a debt cleared, others who used security firms to advise them, and so on.  there doesn’t appear to be any one way that offers a constant shot at success, and that is why it is very important to observe a few key rules of the road that are a bit more old school.  contracts are good, but here are a few things that I like to go by that offer a bit more protection:

1) What does your gut tell you?  If you are kicking off a relationship with a client/vendor and it doesn’t feel right, or you know they are going to be a pain to manage.  Don’t enter into the partnership

2) Be clear in your contracts on payment terms, and issue invoices on time.  Often times, it is a matter of clarity and following through

3) Never lose your leverage.  One firm I worked with here had several million in AR, and the rate of collecting was very low because they had no leverage.  All the products had been received and there was no leverage left.  Had they held onto the products until payments (1st, 2nd, etc) had been made, they could have reduced their exposure by 80%.

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