Don’t Lose Time: Recognize the Operational Risks of your Customers

​In recent years, the operations of different industries around the world have been affected to varying degrees by factors such as trade wars or political factors. The beneficiary enterprises are of course leading the way, enjoying the results; while the affected enterprises are already riddled with sores and are staggering. The arrival of an epidemic has accelerated the demise of these enterprises.

Client:                          Electronics manufacturer in Mainland China
Debtor Location:       United States
Background:              To collect HK$7 million in payment for goods
 
The client has been working with the U.S. debtor for many years and their relationship has always been good and has never had any problems. However, when a payment of HK$7 million was due in mid-2020, the U.S. company only indicated in an email to the client that they were unable to repay. After repeated collection efforts through different channels, the client could not get in direct contact with the person in charge of the debtor company, and could not fly over to understand the situation due to the epidemic. They also considered cross-border litigation in the U.S. but were deterred by the lack of access to clients' foreign assets. Finally they asked RMS for help to check the status of the debt company.
 
After checking the RMS Big Data records, we found that several other companies had asked RMS about this debtor company during that period of time. The number of employees in the debtor company had also been reduced by more than half compared to previous figures. According to our experience, the risk of this client had already been very high. After learning of the case, the client was very decisive in referring the case directly to RMS for recovery.
 
Because of the pandemic, no one worked at the debtor company's physical address. Eventually, we managed to get in touch with the person in charge who was working at home. However, he said the company encountered sudden changes by the impact of the epidemic and was about to close down. He advised everything had been left in the hands of their attorney.
 
When RMS contacted the attorney, the attorney indicated that the debtor company was unable to repay the entire amount owed and that it would apply for closure, and might not be able to pay any outstanding amounts. RMS is rooted in the United States and understands the procrastination skills of attorneys. We had also got known that the debtor company had no upstream and downstream partners, and had not received any new business. However, there is still a certain amount of inventory in their warehouse. With continuous efforts by RMS, the debtor company eventually repaid half of the amount within 3 months after multiple pressures on their attorney. Finally, the business was closed due to the inability to recover, and it took less than six months from default to closure.
 
In the end, RMS succeeded in recovering half of the money on behalf of our client, significantly reducing their loss. As far as we know, many other creditors who tried collection afterwards end up with nothing.

​The COVID-19 outbreak has already spread around the world, with serious and far-reaching impact on trade and commerce. Therefore, it is necessary for enterprises of all sizes to strengthen the control of trading risks and to keep an eye on the security of their accounts receivable collection.

Robust business and receivables security are the key to business survival. Please remember to get to know your partners before working with them. Basic background checks and credit checks can help you assess the risk of your customers. Please also pay attention to the business status of your existing customers, to prevent from falling into any debt crisis.