How to Prevent and Handle Payment Defaults by China Importers?
Payment defaults by importers from China, such as late payment or non-payment, can catch SMEs off guard.
Intentional breach of contract
Bad-faith buyers may intentionally breach the contract and shift the blame onto the seller, claiming that the default was the seller’s fault. Any ambiguities or loopholes in the contract can increase such risks.
Disputes over quality, shipping, or documentation
Buyers may default in payment when there are disputes over the quality of the goods or services received, or there are issues with shipping or documentation that delay payment.
Buyer insolvency
Buyers may be unable to pay for the goods or services received if they become bankrupt or insolvent.
Regulatory barriers
The buyer may be prevented from making the payment if there are regulatory restrictions imposed by the government, given that the Chinese Renminbi is not freely convertible to US dollars and the Chinese government has strict foreign exchange controls.
Currency exchange issues
Major fluctuations in currency exchange rates can impact the buyer’s ability to pay the agreed amount in the seller’s currency. It is essential to specify in the contract the currency for the product or service.
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- Advanced precaution: To minimize the risks and impact of payment defaults and protect your business interests, be vigilant and proactive in conducting quick due diligence on the buyer’s good standing and lack of bankruptcy status.
- Remedial action: If payment defaults happen, take immediate action, including renegotiating payment terms as the first step or having a local lawyer send a demand letter.
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Legal Q&A
What are my options if a China importer defaults on payment for my goods or services?
The first step is to review your contract and assess your rights and obligations. Depending on the circumstances of the default and your contract signed, you may be able to negotiate a payment plan or settlement with the importer, pursue legal action in a Chinese court, or file a claim with an arbitration organization, such as the China International Economic and Trade Arbitration Commission, or the Hong Kong International Arbitration Centre.
Can I sue a China importer for non-payment in a foreign court?
While it is possible to sue a China importer for non-payment in a foreign court, it may not always be the most practical or effective option. Chinese law generally requires that disputes related to contracts with Chinese parties be resolved in Chinese courts or through arbitration in China, except if the parties agreed differently in their contract. It’s worth noting that even if you obtain a judgment from a foreign court, you will eventually need to enforce the judgment in the location where the defaulting party has assets.
How can I protect myself from currency exchange risks when doing business with a China importer?
To protect yourself from currency exchange risks when doing business with a China importer, consider including currency clauses in your contract that address the exchange rate and currency conversion issues. Additionally, it’s a good idea to work with a bank or financial institution that can provide hedging options to minimize currency risks.
How can I avoid the payment defaults of a China importer?
To avoid payment defaults by a China importer, you can:
- conduct due diligence on the importer’s good standing and solvency
- request references from the importer and review their financial statements
- ask for a significant down payment
- make sure to have clear payment clauses in the contract
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