When Contracts Aren’t Enough: Solving Non-Payment Issues in China

Delayed and non-payment issues are very common in China. Imagine this: A mid-sized European beauty brand, let’s call them Elegance Naturals, was thrilled to secure a lucrative partnership with a large Chinese distributor. This distributor promised to bring their premium skincare line—highly sought after in Asia—to the booming Chinese market.

The deal looked perfect on paper: after months of negotiations, contracts were signed, the first shipment of products (valued at hundreds of thousands of euros) arrived on schedule, and consumers were raving about the brand’s serums and creams. But then came the twist.

The Silence After the Sale

When the agreed payment deadline arrived, nothing happened. Elegance Naturals’ accounts team sent polite reminders. Days turned into weeks, and the distributor’s responses were vague:

“The payment is in processing.”

“Our finance team is reviewing it.”

Eventually, the responses stopped altogether. Panic set in. Elegance Naturals had done everything by the book — a detailed contract, a reputable distributor, and a flawless product delivery. So why wasn’t the payment coming through?

What Went Wrong?

Unfortunately, this scenario is not uncommon for foreign businesses in China. Non-payment—even with a solid contract—is a challenge many face due to:

Cash Flow Priorities: Even large distributors may strategically delay payments to manage their cash flow, often prioritizing domestic obligations over foreign invoices.
Cultural Differences: In China, business relationships (guanxi) often take precedence over strict adherence to contracts, leading to misaligned expectations.
Legal Hurdles: While contracts matter, enforcing them in a foreign jurisdiction can be costly and time-consuming.
Power Dynamics: Big distributors might assume smaller foreign firms lack the resources to pursue aggressive collection strategies.

How S.J. Grand Stepped In

Elegance Naturals turned to S.J. Grand for help when it felt like all options had been exhausted. Here’s how we solved the problem:

Analyzing the Case: We meticulously reviewed the contract and communication history, identifying key leverage points. It was evident the distributor underestimated Elegance Naturals’ ability to escalate the issue.
Local Expertise in Action: Leveraging our local presence, we reinitiated contact with the distributor. A local intermediary often sends a strong message that the issue is being taken seriously.
Strategic Negotiation: We engaged with influential trade associations and tactfully hinted at potential reputational risks for the distributor. At the same time, we prepared legal steps to show Elegance Naturals was ready to act if necessary.

Within four weeks, the distributor agreed to pay the outstanding amount in two installments, ensuring Elegance Naturals recouped their losses without resorting to costly legal battles.

A Quote from Our Client

“We were ready to write off this payment as a loss, but S.J. Grand turned things around. Their understanding of the local business environment and strategic approach were invaluable.” – CFO, Elegance Naturals

Key Takeaways for Businesses

Conduct Due Diligence: Research potential partners thoroughly, including their financial stability and payment history.
Build Strong Relationships: Foster trust and understanding alongside contractual agreements.
Work with Local Experts: A trusted local partner like S.J. Grand can bridge gaps and ensure your interests are protected.

Facing Non-Payment Issues in China? We Can Help

At S.J. Grand, we specialize in helping businesses resolve payment disputes and navigate the complexities of operating in China. With decades of experience and a proven track record, we ensure you get paid while preserving key relationships.

Contact us today to discuss your case and find out how we can help.

About Us

S.J. Grand is a full-service accounting firm focused on serving foreign-invested enterprises in Greater China since 2003. We help our clients improve performance, value creation and long-term growth.