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The Art of Collecting from Clients in Asia

The Art of Collecting Payment from Clients in Asia
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Knowing the unwritten rules of collecting payments from overseas can yield better results.

When management consultant Dorothy Erlanger ran a seminar in Singapore for a major company in Japan, her plan was to send an invoice after the job was done, as was customary in her field, and ask for payment in her own currency. To indicate this, her firm said in her contract that 100 percent of the payment was due in U.S. dollars on completion of the engagement.

But at the end of the seminar, company officials invited her to the general manager’s office—where the vice president for the Japanese company handed her an envelope. “It was cash—about $15,000 in U.S. dollars,” said Erlanger, who is based in the Richmond, Va., area. She was flabbergasted that her conscientious clients had interpreted the agreement to literally mean she wanted a cash payment the moment the job was done, but handled the misunderstanding as best she could. “Thank you very much,” she said, bowing. Her grace in the situation paid off. “I subsequently did an enormous amount of additional work for them,” she said.

Collecting from customers always requires sensitivity, but as Erlanger found, it can become more complicated when two cultures come together. As business becomes more global, a growing number of American businesses must navigate this process. The U.S. Census Bureau found that in the first six months of 2015, U.S. exports to Asia totaled $228.1 billion, and in 2014, they hit $480.9 billion. Twenty years ago, for the entire 12 months of 1995, U.S. exports to Asia totaled $197.4 billion—less than half of what they were in 2014.

Knowing the written—and unwritten—rules of collecting payments from overseas clients can make the process easier and result in a better collection rate. Here are tips from experts and business people who frequently work with customers in Asia.

Understand how long payments usually take

American business people tend to think in a linear way, where, once they have delivered whatever they sell, it is time to collect payment, according to Michael Zakkour, who leads the China/APAC practice as a vice president at Tompkins International, an international supply chain and implementation consulting firm headquartered in Raleigh, N.C., that serves numerous clients in Asia.

In Asian cultures, and particularly in China, matters are not as cut-and-dried, especially if you have provided clients with professional services, he said. “There’s more of a view [that] they want to see tangible results before they hand over the money,” Zakkour said. Against this backdrop, the common American 30-day payment standard may be hard to enforce. “You may have a policy of net 30 but be dealing with the realities of net 180,” Zakkour said. Make sure you have the cash flow to live with that before making a deal.

That said, each country is different, so ask knowledgeable advisers or contacts what payment practices are common in the market you plan to enter. “The Hong Kong and the U.S. systems are very similar,” said Eddie Wong, a partner in Friedman LLP, an accounting firm in New York City. Wong leads its Asia practice and advises both Western companies doing business in Asia and middle-market Asian companies expanding into the West. “Payment terms are net 30. Pretty much, they will try to comply.” In a company with tight cash flow, 30 days might stretch to 40 days or 45 days, he said.

It’s not unusual for professional services providers to ask for a substantial deposit in advance and progress payments later on, but it depends on your industry and the scope and duration of the project. “In most cases, what I would do with a training project or a strategic plan is 50 percent due in advance if it’s a one-off project, and 50 percent on completion of the program, plus expenses,” Erlanger said.

Typically, payments by Asian firms to U.S. vendors and service providers are done by wire transfer through the respective banks. Many businesses ask for payments in U.S. dollars to insulate themselves against currency fluctuations. “I do not accept payments in foreign currencies,” Erlanger said.

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Especially with large transactions, be sure to conduct a formal check on your trading partner and their principals—be sure that you are working with a trustworthy firm. “Make sure they are legitimate and they are what they say they are,” Wong advised. Wong’s firm, which does audits for public companies in Asia doing business in the United States, typically hires a firm in Hong Kong that specializes in worldwide background checks to vet potential clients. The goal of the searches is to uncover past lawsuits and information on the business interests of the principals.

Put it in writing

Business in Asia is about building ongoing relationships, so Americans’ focus on contracts may seem off-putting in countries such as China. “This concept of putting down on a piece of paper something that is going to govern our relationship for the next three years when we cannot predict the next week seems somewhat ridiculous,” Zakkour said. “What also seems ridiculous is you would put down 30 pages—and the next 20 pages says, 'Here’s what we’re going to do to each other if it goes wrong.’”

Nonetheless, you still need solid contracts to protect you if a business will owe you money. “The gap between the two worlds is shrinking,” Zakkour said. “Commercial law is becoming more important.” He advised having an attorney fluent in the native tongue of your client draft any contracts to avoid any disconnects. “You really need to understand what that contract means to them,” Zakkour said. Many U.S. law firms have relationships with local firms in other countries and can help arrange this, Erlanger said.

Know when to speak up

As in the United States, you may need to assert yourself to collect from clients in Asia with long-overdue invoices, but you’ll need a slightly different approach. “When our U.S. clients’ receivables have been outstanding for a while, we can call and say, 'The invoice is outstanding. Please send us a check,’” Wong said. “Most of the time you see a check in the mail in the next few days. When we have receivables in China, we really need to call the CEO or CFO of the company to ask for payment. Sometimes, we may need to give them a little push: `Your next quarterly report is coming due, and your last quarterly payment is not paid yet. We will not be able to perform any services if we do not receive that.’ If you say that, you will see a wire the next day to your bank account.”

If you have been introduced by a mutual acquaintance, referencing that relationship may also help in reaching a negotiated solution in Asia, where reputation is very important, Zakkour said. You might say, “We’re working together because Person A put us in the same room,” Zakkour said. “That person stands to lose face for having put me or you in this situation.”

In a worst-case scenario, you may need to hire a local attorney to do collections for you, working through your own law firm. “Every court system in every country is different,” said Keith Stillings, CEO of Assurance Global Financial Services and Solutions, who is based in the Philadelphia area. Assurance does collections for companies with offices in China and Vietnam that are owed money by companies around the world. Getting lawyers involved is always a tricky scenario in any culture, but finding one who can handle the process smoothly will make it easier for you to resolve the matter quickly—and move on to your next deal.

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