How To Get Money Back From Debtors?

·About The Author·

· Author of Chinese Law Books: Intellectual Property, Commercial, Company and Economic Law In A Minute

· Author of English Law Book: Business Law In A Minute

· Co-Author of Peking University Textbook: Business Ethics

· Graduated from Fudan University Law School

· Interviewed by Bloomberg and Timeout

· Mentor at Bloom Education (Charity)

Wechat: lawinamin 

CHINA LAW 101

Video 17

This is the 4th video of the Investing In China Chapter.

Today we shall talk about a common problem that everybody has faced before, which is debt collection from individuals or companies. We will talk about what evidence is needed, what the process is regarding legal action, and some tips and tricks that you should know.

If you are loaning a friend some money, in most of the cases you won’t actually sign a contract with him. That’s not a big deal as long as you have the transfer records, be it on wechat, alipay or bank. Combined with your conversations on wechat about the loan, that is enough evidence if you are going to sue him in court.

Regarding business deals gone sour, like clients not paying you for service fees, or not getting your goods after paying the supplier, the principle is actually the same as the above. If you have a proforma invoice or contract that would be best, but if you don’t have any wechat or email conversations as evidence at all, it is still possible to recover the money through a concept called unjust enrichment. Unjust enrichment means that a person confers a benefit without receiving the proper restitution required by law. The law sees this as unjust because one person is enriched at the expense of another without paying his dues.

If you find yourself in such a situation, a civil lawsuit is the way to go. Civil lawsuits generally take around 9 months from start to finish. If the amount you are suing for is lower than 30% of the average yearly salary of a city, the court puts you on the small claims procedure, which is must faster, say around 3 months. For example, in Shenzhen, the annual average salary is around 140000 so 30% of that is around 42000.

I would generally advise hiring a lawyer for any sort of lawsuit unless you are fluent in Chinese reading, writing, listening and speaking because you will need all these 4 abilities. You will also need basic legal knowledge in order to increase your chances of winning. If the other party hires a lawyer and you do not, you will face a lot of difficulty as you will be going to a gunfight bare-fisted.

So if you are planning on loaning a friend some money, my best tip for you is to definitely sign a good contract with that person. You do not need to feel bad about doing that because it is that person who needs a favour, not you. If he or she wants the loan, they have to follow your rules. You should also ask for him to provide an object of good value that you may sell in the future if he does not return the money, like a watch. If he is unable to provide such an object, ask him to get a buddy to be a guarantor. This way, you have at least another person to sue if he doesn’t pay you back.

Remember that if a person who is not that familiar with you is trying to get a loan, for example, the guy you met at the bar, the friend of a co-worker, or a person you haven’t even met in person before, he has probably already asked all his family members and close friends and is unable to return their money. Do not feel uncomfortable rejecting a person that you do not know that well. Even for close friends, a loan is always the breaking point of a relationship, as they will question your friendship, and even become your enemy when you ask for the money back at some point. A good rule of thumb with loaning to close friends or relatives is that you should show support by giving them a small amount as a gift to help them, say 500 or 1000, and consider this money gone forever. 

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