Q: I understand that the process of billing and payment in working with Chinese clients, either government or private, can be very confusing and frustrating. Many design consultants and contractors have trouble collecting their fees on time and in the amount defined in the contract. Are there any new regulations that improve the situation? Is there any resource or support available to prevent such default without seeking legal actions? Under local jurisdiction, it can be even more a hassle.

A: Although there continue to be new regulations in China intended to encourage investment and development, these regulations don't address payment requirements related to professional services. Unfortunately, short of pursuing litigation, the issue of collection of accounts receivable becomes a business decision based on your knowledge of, or experience with, the client. The choices you may consider include:

• Payment schedules in the contract -- if the client misses a payment, stop work until the payment is received
  
• Require payments in advance -- when you use up the advance, stop work until you receive the next advance
  
• Require a non-revokable letter of credit -- include an agreed-upon procedure for you to draw against the letter
  
• If you have a valid signed contract with the Client, you may be able to purchase project fee payment insurance from the World Bank (visit their web site at www.worldbank.org to see the risk management protections they offer)

Any time you deal with a new client, especially outside the U.S., it's mandatory that you find ways to protect your cash flow. Doing due diligence on the client's track record on project performance and payments must be part of that review. Having a clear agreement on payments in your contract and being ready to stop work before you get in too deep needs to be a basic part of your approach.

In China, the issue of payments may be more difficult for us to comprehend than in other areas of the world. A lot of the reason is cultural and comes from the very long history of the Chinese. Although most Western cultures think of the Chinese as primarily agrarian and socialistic, this has only been a small part of their cultural background. In fact, the Chinese have a much stronger merchant background coupled with the Confucian concept of truth. From this heritage, many Chinese businessmen may seem to be unreasonable in the negotiating positions they take in business deals. This is not being rude or unfair; it is simply a matter trying to get the best deal for their side. A contract is not a contract as we know it, it is a starting point for the real negotiations. If you are willing to continue to work while not getting paid, this is no shame for your client; he is simply trying to hold his cash as long as possible. And as long as you continue to work for free, why not? Yet, once you have developed a solid business rapport and understand what drives your client while you have educated him to understand your cash flow needs, a strong relationship can form that will provide a steady flow of profitable work that is paid for in terms you and your client can both be comfortable with.

Thanks to Randolph W. Tucker, P.E., who is executive vice president of The RJA Group Inc., a global fire protection and security consulting firm that has worked on construction projects in more than 60 countries. The RJA Group's Rolf Jensen & Associates Inc. subsidiary has established a representative office in Shanghai and plans to open a second location in Beijing by mid-2004. He can be reached at rtucker@rjagroup.com.

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