Debt Collection for Hong Kong SMEs: Follow-Up to Filing

At a glance

Jurisdictional limits, procedure, representation arrangements and limitation periods are as most recently published by the Hong Kong Judiciary and set out in the relevant ordinances; for an individual case, consult a solicitor.

The first thirty days decide everything

This is the most important stretch, and the one most people handle worst.

The reason is very human: owners do not want to offend a customer, so on a first overdue invoice they “give them another two weeks”. And two weeks later it feels awkward to chase again so soon.

From the customer’s side the logic is simple — whoever chases hardest gets paid first. Not chasing puts you automatically at the back of the queue.

In practice:

Send a reminder before it falls due. Not a demand, a reminder. “Your invoice XX falls due next Tuesday; details below.” This offends nobody, and makes sure you are not the one forgotten.

Follow up formally on day seven. In writing (email is enough), stating the invoice number, the amount, the original due date and how to pay.

Keep a record of every follow-up. Those records are your evidence later. A verbal chase is the same as no chase.

What goes in a formal demand?

It does not need to be elaborate, but it needs five things:

• The specific amount and invoice number — not “the outstanding balance”
• The original due date and how many days it is overdue
• A firm new deadline — “by X on X date”
• How to pay — full account details, removing an excuse
• What happens next — what you will do if the deadline passes

Write that fifth point plainly, without threats. “If payment is not received by the above date, we will consider pursuing recovery through legal channels” is enough — and you have to actually mean it. Saying it and not doing it drains the weight from everything you send afterwards.

The Small Claims Tribunal: threshold and characteristics

Claims not exceeding HK$75,000 are dealt with here.

Three practical features:

One: lawyers are generally not permitted. Litigants appear in person; a corporate party may generally be represented by a director or employee, with the adjudicator’s approval. The design keeps small disputes from being eaten by legal fees.

Two: the procedure is relatively simple. But documents still have to be prepared — the contract, the invoices, proof of delivery or completion, and your collection records.

Three: it costs your own time. No legal fees, but you attend in person. So weigh it: is that amount worth a few days away from the business?

Above the threshold it goes to a higher court, and legal fees enter the picture — which is exactly why larger debts should be chased earlier, before they compound.

Six years: not “there’s time”

The Limitation Ordinance generally provides a six-year limitation period for contract claims, running from the date the cause of action arose.

Six years sounds long, but two things get in the way in practice:

One: you will forget. For a debt five years old, the documents may no longer be findable (even though the seven-year retention requirement covers it in theory).

Two: the other side may no longer exist. Where the company has been deregistered or struck off, recovery gets a great deal more complicated.

So limitation is not a safety net; it is a deadline.

If you cannot recover it, how is it accounted for?

This is a step plenty of owners miss.

A debt confirmed as irrecoverable can, subject to conditions, be treated as a bad debt. But note: a general provision is not deductible; it has to be a specific debt established as bad.

Which means you need a reason why this particular amount will not be recovered — the customer closed, recovery attempts failed, reasonable steps were taken. Those records are your supporting documents.

See what expenses are deductible.

The most effective work happens beforehand

However good you are at chasing, it is better not to be strung along in the first place.

Four things that cost almost nothing:

One: state the payment terms and what happens if they are missed in the contract. “Payment within 30 days of delivery” is far clearer than “payable on completion”.

Two: take a deposit from new customers. Particularly on large or long projects.

Three: bill in stages. Do not wait until the whole project is finished to issue one large invoice.

Four: look at the debtor ageing report every month. It is one of the four reports in management accounts — who owes how much and for how long, visible at a glance.

The fourth is the crucial one. Most bad debts happen not because a customer refuses to pay, but because nobody noticed on day thirty that they were overdue.

If it is your own company closing down

Conversely, if you are winding your company up, outstanding receivables have to be dealt with before you close — write off what cannot be recovered and collect what can. See what to settle before closing a company.

It starts with being able to see it

We do bookkeeping and company secretarial work, which includes a monthly debtor ageing report — which invoice is how many days overdue, at a glance. Whether and how to chase is your decision, but at least it will not be day one hundred and eighty before you notice.

For filing proceedings or a substantial dispute, consult a solicitor.

Talk to us, or get started.

This is general information and does not constitute legal advice. Jurisdictional limits, procedure, representation arrangements and limitation periods are as most recently published by the Hong Kong Judiciary and set out in the Limitation Ordinance and the relevant ordinances; for a recovery dispute, consult a solicitor.