Debt Collection in China: Importance of Proper Notification
It is advisable to notify a debtor in China through a Chinese agent. Besides, the notice must be served in a manner that facilitates future legal action in China.
As in other countries, the main methods of debt collection in China are amicable debt collection, litigation or arbitration, and enforcement of judgments and awards.
Amicable debt collection, namely notification and negotiation, is always the most vital form of debt collection Although its success rate is somewhat uncertain (as it depends on the willingness of both sides to negotiate), its rate of return is relatively good due to its low cost.
At the end of the day, notifying the debtor is more than just a demand for payment. More importantly, it gives you a favorable position in future litigation.
First, notifying the debtor allows the statute of limitations to restart.
According to Chinese law, you must file a lawsuit against the debtor within three years from the date the debtor failed to pay the debt or the date you should have known the debtor failed to pay. Otherwise, you may not win the lawsuit. That is, the statute of limitations in China is three years.
If you have notified the debtor within three years, this three-year period will start over. Thus, you will be able to file a lawsuit with a court over an extended period.
Second, notifying the debtor may make it easier for you to rescind the contract.
Chinese courts are reluctant to rule on contract rescission easily. However, if you have made reasonable efforts, such as reminding the other party to perform the contract, but still have not achieved the desired result. In this case, the court will be inclined to grant contract rescission.
Notifying the debtor will prove that you have already informed and urged the other party.
For a detailed discussion on contract rescission, please refer to our previous post, “How Do I Terminate a Contract with a Company in China?”.
So, how should you send a notice?
It would be better to send a notice in a way that will make it easier for you to prove the existence of the notice in court.
We suggest that you use as many of the following four methods as possible at the same time:
- Send a collection letter to the debtor through the Express Mail Service (EMS) of the China Post Corporation, which is the only way of delivery recognized by Chinese courts for service of process.
- Send a reminder email to the debtor’s email address (preferably one listed in the contract).
- Send a reminder text message to the debtor’s cell phone number, and do not delete this message until the debt is successfully collected.
- Remind the debtor to pay the outstanding amount by phone and record the call.
You can notify the debtor yourself or entrust a debt collector or a lawyer to do the above.