China exporters face increasing overseas debt collection challenges. Part 1 of a multi-part series
Much is written about China’s export juggernaut, but little is said about the staggering delinquent accounts receivable due its exporters from overseas customers, estimated by the China Ministry of Commerce at over US$100 billion and growing at US$17 billion annually.
Chinese exporters currently are running bad-debt-to-sales ratios ranging from 5% to 30%. By comparison, US companies average a 1% ratio.
The art and science of overseas accounts receivable is a complex topic. This discussion focuses on a shortlist of key warning signs that indicate a buyer may be planning to forgo payment. These warning signs include:
payment already 90+ or 120+ days past due
breaks payment promises
ignores payment demands
asks for renegotiated payment terms
makes only partial payments without seller approval
claims they do not have money to pay
claims they cannot pay until they are paid by their customer
threatens bankruptcy if payment demanded
avoids contact, does not return calls or e-mails
requests patience due to new investors
claims payment will be forthcoming once their company is sold
buying from exporter competitors without paying existing debts
seeks to return merchandise long after delivery has been made
falsely claims defective merchandise was received
If an exporter experiences any of these warning signs, there is a high likelihood the customer is no longer a customer, but has transitioned to debtor status. Unless the exporter takes targeted actions to proactively seek payment, the debt likely never will be recovered.
Patience often is an underrated virtue in many facets of our professional lives. However when it comes to accounts receivables, time is the enemy. The longer an exporter waits to action collection efforts, the less likely payment will ever be received.
Knowing the warning signs of bad debt is no guarantee of avoiding their crippling affect upon a business. Ignoring those warning signs, however, is a sure-fire recipe for lost revenue and possible business failure.
In summary: A sale is never complete until it the invoice is paid.
posted about 2 years ago