How I collected a 400k bad debt in China

How I collected a 400k bad debt in China

If I asked 10 friends who run a business in China, 5 of them would say collecting money from customers was a big headache. The other 5 probably run a restaurant business so had no trouble collecting money. (Yes, F&B business is booming)

Here I’d like to share my story about how I successfully collected a fairly large bad debt in China.

In was around 2007, the second year for the recruitment firm in Shanghai that I had built with a business school classmate. Business was good.

We had successfully placed a senior manager to work for a client. It was a hard-to-find perfect match. Unfortunately, the manager quit after five months. I heard that he had a nervous breakdown and disappeared (yes, work pressure in China can drive people crazy!)

Under the terms of our service agreement, the search fee was due and payable 30 days after the day a candidate reported to work. We would provide a best effort free replacement search, if the employment was terminated within three months of placement, and if the client had paid the fee on-time. Pretty standard for the industry.

I had a lot of experience with commercial contracts, so I was the one drafting the template, and approving any variations.

And as is often the case in China, many people like to ignore what is written on the contract that they have signed. In this case, our client just refused to pay.

After a lot of chasing and explaining, I decided to take legal action to collect the overdue.

While developing the standard agreement for the firm, I had consulted a local lawyer friend. This was a gentleman I met in the Jin Jiang Hotel swimming pool, to which I liked to go for a quick swim in mid-afternoon, fully recharged after 15 minutes of quick laps, then go back for a few more hours of work. In exchange for his legal advice, I gave him tips on how to swim better.

He advised that arbitration would be more efficient than proper courts in the event of disputes, in my kind of business. So I adopted that in all our commercial contracts.

Going back to collecting the bad debt – so I hired a lawyer to file a complaint to the Shanghai Arbitration Center. (My swimmer lawyer friend would be too expensive: I’d need to be in the water a long time to repay him! )

A few weeks later, we had a hearing at the Shanghai Arbitration Center. My client was actually a listed company based in Beijing. They sent a lawyer to attend.

We presented our case. They argued that they shouldn’t have to pay (interesting details. Will write in another article), but of course all documentary evidence and the law said they should pay.

The arbitration officer ruled in our favour. He then persuaded me to offer some discount to make it easier. I agree to give them 10% discount, just as a goodwill gesture. We signed on the paperwork and went home.

It still took us a few weeks to actually get the money into our bank. Our lawyer needed to remind them that the arbitration ruling was final and binding. If they didn’t pay, we would apply for a court order in Beijing to freeze all of their bank accounts.

So they finally paid up. Justice prevailed.

This article was originally posted in LinkedIn.


Leroy Yue, currently based in his hometown Hong Kong, is a business advisor focusing on Japan and China. He has held senior positions in large global companies, and has worked and lived in London, Tokyo, Shanghai, Hong Kong and Manila.

Leroy speaks fluent English, Japanese, Putonghua and Cantonese. He has an MBA from London Business School. He also did a program at Sophia University 上智大学 (Tokyo), and an executive program at Shanghai Jiaotong Univsersity 上海交通大学.

more about Leroy Yue,  LinkedIn Profile

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