Here are some common tactics used by “guests” when they want to default on their debts. When these situations occur, please be vigilant and take precautions.
01Pay only part of the money without the seller’s consent
Although the two parties had negotiated a price in advance, the buyer would only pay part of the money, and then acted as if that was the full amount they had to pay. They believe that the exporter will eventually compromise and accept the “full payment”. This is a tactic commonly used by Lao Lai.
02Inferring that you have lost a big customer or are waiting for the customer to pay
It’s also a common tactic, claiming to have lost a big client and therefore couldn’t pay. There’s a similar tactic: Buyers say they can only pay sellers if their customers buy the goods. When cash flow is tight, Lao Lai often uses such pretexts to delay payments. Whether or not they’re actually waiting for their customers’ customers to pay, this can be a dangerous situation for Chinese exporters, because if the buyer’s cash flow is truly unsustainable, their business may not last long. Alternatively, the buyer may have ample cash flow and just want to use this trick to delay payment.
03 Bankruptcy Threat
This kind of trick often occurs when the old lady is procrastinating and we are urging. They tend to stress that if the seller insists on payment, they have no choice but to go bankrupt, putting on a “no money or no life” look. Buyers often use this delay tactic, asking creditors to be patient and trying to convince creditors that “insisting on paying now will force the buyer to file for bankruptcy.” As a result, not only would the seller receive a small portion of the payment due in accordance with the resolution method of the bankruptcy proceedings, but it would also have to wait a longer period of time. If the seller does not want to break up with one shot, he will often fall into a passive situation step by step. Similar to the previous one, the threat of bankruptcy can also put domestic exporters at risk.
04Sell the company
One of the more common traps buyers use is a promise to pay off their outstanding payments as soon as they get enough money to sell the company. The strategy draws on the belief espoused by traditional Chinese cultural values that paying off past debts is the personal responsibility of the company owner, as well as the unfamiliarity of Chinese exporters with overseas company law. If the creditor accepts this excuse without obtaining a personal guarantee of payment with the debtor’s signature, then it will be bad – the debtor can sell the company in an “asset-only transaction” without protection, legally There is absolutely no obligation to use the proceeds from the sale of the company to pay off past debts. Under an “asset-only transaction” purchase clause, the new company owner simply purchases the debtor’s company’s assets and does not assume its liabilities. Therefore, they are not legally obliged to repay the company’s previous debts. In overseas markets, “asset-only transaction” is a commonly used business acquisition method. While the “asset-only” acquisition law is undoubtedly well-intentioned, it can also be used by debtors to deliberately escape debt. This allows debtors to get as much money into their pockets as possible while getting rid of the company and corporate debt. It is nearly impossible for creditors to produce legally conclusive evidence to win such cases. This type of legal case usually ends with the creditor spending a lot of time, effort and money without any financial compensation.
05 Guerrilla Purchase
What is “guerrilla buying”? It’s just a shot at a different place. A customer once placed several small orders, all 100% prepaid, the credit looks good, but it could be a trap! After exporters let their guard down, “buyers” will demand more lenient payment terms and throw large-scale orders as bait. Because of the new customers who keep placing orders, exporters will easily put risk prevention issues aside. Such an order is enough for the scammers to make a fortune, and of course they won’t pay again. By the time the exporters reacted, they had already slipped away. Then, they would go to another exporter who was suffering from no market and repeat the same trick.
06 Falsely reporting problems and deliberately finding fault
This is a delinquent tactic that is usually used long after the goods have been received. This kind of thing is more difficult to deal with if it is not agreed in advance in the contract. The best way to avoid this is to take precautions before trading. Most importantly, exporting companies need to ensure that they have a written agreement signed by the buyer for all product specifications. The agreement should also include a mutually agreed upon product return program, as well as the buyer’s process for reporting quality problems with the merchandise.
07Using third-party agents for fraud
Third-party agents are a very common transaction method in international trade, however, the use of third-party agents to defraud is everywhere. For example, overseas clients have told exporters that they want a third-party agent in China to handle all the trade. The agent is responsible for placing the order, and the products are shipped directly from the factory to overseas customers according to the agent’s requirements. The agency also usually pays the exporter at this time. As the number of trades increases, the payment terms may become more relaxed at the request of the agent. Seeing that the trade is getting bigger and bigger, the agent may suddenly disappear. At this time, exporting companies can only ask overseas customers for unpaid amounts. Overseas customers will insist that they cannot be held responsible for the agent’s purchase of products and evasion of money because the agent has not been authorized by them. If the exporting company consults a professional overseas collection consultant, the consultant will ask to see the documents or other documents that can prove that the overseas customer authorized the agent to place the order and ship the goods directly. If the exporting company never asks the other party to provide such formal authorization, then there is no legal basis to force the other party to pay. The above tricks may be concentrated by Lao Lai in the form of “combination punches”. The following use cases illustrate:
Case number one
Only the first batch of goods has received the payment… Our company talked to an American customer, the payment method is: no deposit, the first batch of goods will be paid before shipment; the second ticket will be T/T 30 days after the departure of the ship; the third 60 days T/T after the cargo ship departs. After the first batch of goods, I felt that the customer was quite large and should not be in arrears, so I confiscate the payment and ship it first. Later, a total of 170,000 US dollars of goods were collected from the customer. The customer did not pay for the reason of financial travel and travel, and refused to pay on the grounds of quality problems, saying that his next family had claimed against him, and the amount was the same as the total amount to be paid to me. Equivalent value. However, before the shipping customers have QC down to inspect the goods, they also agreed to ship. Our payment has always been made by T/T before, and I don’t do any letter of credit. This time it was really a mistake that turned into an eternal hatred!
Case 2
The newly developed American customer owes more than 80,000 US dollars in payment for the goods, and has not paid for nearly a year! Newly developed American customers, the two parties discussed the payment method very intensely. The payment method proposed by the customer is to provide copies of all documents after shipment, 100% after T/T, and arrange payment within 2-3 days through a financing company. Both my boss and I thought that this payment method was risky, and we fought for a long time. The customer finally agreed that the first order could be paid in advance, and the subsequent orders would adopt their method. They have entrusted a very well-known trading company to process the documents and ship the goods. We have to send all the original documents to this company first, and then they will send the documents to the customers. Because this foreign trade company is very influential, and its customers have great potential, and there is a middleman in Shenzhen, an old beauty who can speak Chinese. All communication is carried out through him, and he collects commissions from customers in the middle. After considering the measurement, finally our boss agreed to this payment method. The business started very smoothly, and the client sometimes urged us to provide the documents quickly, because they also had to take the documents to collect money from their clients. Payment for the first few bills was fast, and payment was made within a few days of providing the documents. Then the long wait began. No payment was made after providing the documents for a long time, and there was no response when I sent an email to remind me. When I called the middleman in Shenzhen, he said that the client’s client did not pay them, and they are now having difficulty in cash flow, so let me wait, I believe they will definitely pay. He also said that the client also owed him unpaid commissions and owed more than they owed us. I have been sending emails to remind me, and I have called the United States, and the statement is the same. Later, they also sent an e-mail to explain, which was the same as that of the middleman in Shenzhen. I emailed them one day and asked them to write a letter of guarantee stating how much they owed us and when it would be paid, and asked them to give a plan, and the client replied that I would give him 20-30 days to sort out the accounts and then get back to me . As a result, there is no news after 60 days. I couldn’t bear it anymore and decided to send another weighty email. I know that they have two other suppliers who are also in the same situation as me. They also owe tens of thousands of dollars and have not paid. We sometimes contact each other to ask about the situation. So I sent an email saying that if I don’t pay, I have to do something with other manufacturers, which is so unfair to us. This trick still worked. The client called me that night and said that their client owed them $1.3 million. They were not a big company, and such a large amount had a great impact on their capital turnover. No money to pay now. He also said that I threatened him, saying that we were not shipping on time and so on. He could have sued me, but he didn’t plan to do so, he still planned to pay, but he didn’t have the money now, and he couldn’t guarantee when he would get the money… A wise man. This painful experience reminded me to be more careful in the future, and to do my homework in customer surveys. For risky orders, it is best to buy insurance. In the event of an accident, consult a professional immediately without delaying it for too long.
How to prevent these risks?
The most important thing is that there is no fluke or greed when negotiating the payment method, and it is safe to do so. If the customer doesn’t pay by the deadline, then time is your enemy. Once the payment time has passed, the later a business takes action, the lower the probability of recovering the payment. After the goods are shipped, if the payment has not been collected, then the ownership of the goods must be firmly in your own hands. Don’t believe the one-sided word of the customer’s guarantee. Repeated concessions will only make you irreversible. On the other hand, buyers who have returned or resold can be contacted depending on the situation. Even if the goods are not defrauded, the demurrage fee is not low. And for those countries that can release goods without a bill of lading (such as India, Brazil, etc.), you must be more careful. Finally, don’t try to test anyone’s humanity. You don’t give him the opportunity to default on his debts. He may always be a good customer.
Post time: Aug-18-2022