A couple of months ago I received a claim from a creditor in China. The creditor is a marketing research consulting firm, and they performed various focus groups on behalf of a beverage manufacturer in Pennsylvania that was trying to enter the Chinese market.
I received documentation such as their Research Specifications Contract, Invoice, and a whole slew of emails between several different parties on both sides. Some of the emails contained minor complaints from the debtor about the services provided, but a couple of others also indicated promises to pay the balance due.
The original contract amount quoted in Chinese yuan was equivalent to about $75K. During the field work, additional focus groups were requested by the debtor which pushed the final invoice amount to $95K. The invoice was already one year past the payment due date when it was placed with our office.
In looking at the documentation provided, there were many items that weakened the legal strength of the documents and could possibly provide reasons for the debtor to maneuver out of the payment obligation. Putting on my credit risk management hat, I conveyed to the creditor several items that were either confusing or needed to be included so that the documents were more clear, concise, and legally strong.
The first item that I noticed was the difference between the original quote of $75K on the contract and the final invoice amount of $95K. How this difference was arrived at was not included in their supporting documentation. Upon requesting more clarification, I found out that the additional work was requested in an email from the debtor, but nothing was formally signed. Although this is not the end of the world, not having the additional work formally signed off on can open the door to payment delays and a downright refusal to pay at all.
The second item had to do with the timeline as to when invoices would be issued and when they were due. In one part of the contract, the first invoice for 25% of the original contract amount was to be issued and paid upon acceptance. However, under Terms, it indicated that the first invoice was due 60 days from the invoice date. This conflict of due dates resulted in all the work being performed without any monies being paid in advance. Subsequently, I suggested two very important ideas:
- Terms must be clarified so that there are no payment due date conflicts or inconsistencies.
- If 25% of the quote fee is required, then there needs to be an internal control in place to put the brakes on against performing any field work if this payment is not received,
The third item had to do with the language and correctness of the English within the original document. There were some errors that led to a complete misunderstanding. Under the Terms again, there were cancellation fees charged when the customer cancelled the contract prior to the field work.
The cancellation fees were written as follows:
- “If the cancellation is made 14 days or less before the start of the field work, then 50% of the contract fee is to be paid.”
- “If the cancellation is made between 7 and 14 days before the start of the field work, then 75% of the contract is to be paid.”
- “If the cancellation is made 7 days or less before the start of the field work, then 100% of the contract fee is to be paid.”
In reading the latter, I couldn’t understand whether 50%, 75%, or 100% of the quoted contract fee is to be paid when the contract is cancelled at 14 days or less before the start of the field work.
- The first cancellation fee should have said, “14 days or more.”
- The second cancellation fee should have said, “between 7 and 13 days.”
- The third cancellation fee should have said, “6 days or less.”
The final item had to do with the authorized signature by the creditor, which was in Chinese characters without any supporting English. Since the entire contract was in English and the debtor is in the US, the signature should also have been in English. I am not clear to what extent a Chinese character signature would hold up in a US court of law, but I imagine that certification attesting to the name, written in English, would at some point be required.
So, whether we are doing business in China, the US, or any other country, it’s important for every foreign creditor to make sure that all their documentation is not only clear and correct, but should also be legally strong to support any legal process in the foreign country where they are doing business. To accomplish this, it’s always good idea to let an attorney in the country where your customer is located to review the documentation and make the necessary changes and improvements accordingly.
Your comments are most welcome.
Nancy Seiverd, President
CMI Credit Mediators, Inc.
All Rights Reserved
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