THE S&B BRIEFING

February 5, 2009

The Receivable Plague    

     Billions of dollars of overdue accounts are plaguing all sectors of Asian economies.  Companies that lack experience in foreign trade and with the substantially more aggressive business practices followed in much of the West are proving to be particularly vulnerable.  However, one of Asia's foremost manufacturers of televisions was not immune from taking a large hit.  This Asian company experienced non-payment by one American distributor in an amount exceeding $100,000,000.  The manufacturer delayed the commencement of recovery efforts and continued to ship product notwithstanding the non-payment. As a result, the manufacturer recovered little of the past due amounts and, despite phenomenal sales growth, was barely profitable for approximately five years.

     Experiences such as the foregoing paint an even bleaker picture when viewed against the results of a study conducted by the United States Department of Commerce ("USDC").

     The USDC report indicates that, on average, a receivable is worth only 90% of its value after 60 days, 80% after 90 days, 67% after 180 days, 45% after 1 year, 23% after 2 years and 12% after 3 years (plus many American jurisdictions have short statutes of limitations, as little as three to four years, which operate as an absolute, legally enforceable shield to protect the delinquent customer from ever having to satisfy its debt). It is essential that strong action be taken to recover the amount owed no later than 60-90 days after an invoice is issued or goods are shipped. This is especially important given that U.S. companies often switch to another supplier rather than satisfy their obligation or wait for the unlikely event that an Asian company will enforce its rights to be paid. Additionally, most business enterprises that do not satisfy their obligation to one creditor do not pay many of their creditors. As such, it is imperative that action be quickly taken to establish legal priority over other creditors. If not, the delay could result in later commenced recovery efforts being for naught.

     Asian businesses are accustomed to resolving their disputes informally, seeking a reconciliation which allows all parties to save face and continue their relationship. Many American and other Western country businesses, however, are accustomed to not paying their bills unless compelled to by a court of law. Respect and appropriateness do not figure into the equation for these business enterprises.