Overview of payment practices

By industry

Chemicals

Late payment affects nearly half of the B2B invoices issued in the industry

Chinese respondents from the chemicals industry reported that, on average, 47% of the total value of B2B invoices extended past due. 12% extend past 90 days overdue, and 3% are written off as uncollectable (in line with the average for the country). For 65% of respondents, B2B customers delay payments as a form of financing, while 63% of respondents most often attribute late payments to inefficiencies of the customer’s internal payment process.

On average, respondents are able to turn overdue invoices into cash within 16 days beyond the due date (faster the 22-day country average). DSO in the Chinese chemicals industry averages 28 days (well below the 39-day average for the country) reflecting higher efficiency in collecting long-term outstanding invoices of high value.

Discounts for early payment of invoices is the most commonly used credit management technique

A majority of respondents from the Chinese chemicals industry (78%) reported that they most often offer B2B customers discounts for early payment of invoices to generate cash flow earlier than the invoice due date. 76% of respondents request guarantees of payment from the B2B customers to whom they sell on credit, while 73% requested cash payments.

To protect their cash flow and business profitability, a sizeable proportion of Chinese respondents from the chemicals sector (47%) reported that they either had to increase time, resources and costs to chase overdue invoices, or strengthen their internal credit control procedures.

Customer credit risk expected to worsen over the coming months

In the Chinese chemicals industry, significantly more respondents (64%) expect the risks associated with customer credit to increase than those expecting a reduction of risk (8%) over the coming year. Most of the respondents from the industry expect this to have a negative impact on their DSO, resulting in a reduction in cash flow and the investment capacity of the business. To strengthen credit control over the coming months, Chinese respondents from the chemicals industry plan to either more frequently ask for guarantees of payment from their customers, or offer discounts for early settlement of invoices (36% of respondents for each).

A notable percentage of respondents (86%) are of the opinion that dependence on bank finance will increase over the coming months due to the increased indebtedness of the chemicals industry. However, most respondents from the industry (77%) expect that banks will provide more credit to businesses over the same period. Almost the same percentage of Chinese respondents are of the opinion that the industry business performance (sales and profits) will improve over the next 12 months.

Consumer durables

B2B invoices in the industry are paid late most often due to customers’ liquidity shortages

On average, 44% of the total value of the B2B invoices issued by Chinese respondents from the consumer durables industry is overdue (compared to the 47% country average). Long-term outstanding receivables (those more than 90 days overdue) average 8% of past due payments (below the 13% country average). On average, overdue invoices are cashed in within 22 days of the due date (in line with the country average).

The proportion of receivables written off as uncollectable averages 2% of the total value of B2B invoices. This is almost in line with the 3% average for the country. DSO in the industry averages 49 days, reflecting the 45% of respondents reporting DSO up to 30 days, the 37% reporting DSO up to 60 days and 18% of 90 days or more. As survey findings highlight, B2B customers in the Chinese consumer durables industry pay invoices late most often due to liquidity shortages (as reported by 78% of respondents) and to inefficiencies in their internal payment processes (59% of respondents).

Payment guarantees are the most commonly used credit management tools

Most of the respondents in the Chinese consumer durables industry (83%) reported that they often ask their B2B customers for guarantees of payment when selling on credit. 76% of respondents either adjust the payment terms offered to their customers, or practise customer credit risk management (self-insurance). Taken together, these findings point to a strong focus on internal credit control processes from respondents in the Chinese consumer durables industry.

To mitigate the impact of payment default and avoid liquidity constraints, a sizeable percentage of respondents (47%) from the industry reported to increase resources, time and costs to chase overdue payments, while 34% needed to delay payments to their own suppliers.

Dependence on bank finance expected to grow in the near term

According to 73% of the respondents, indebtedness of the consumer durables industry in China will increase over the coming 12 months, causing businesses to become more dependent on bank finance. However, most respondents (63%) believe that banks will provide more credit to businesses over the same period to alleviate pressure on cash flow.

47% of the Chinese respondents in the consumer durables industry believe B2B customers’ payment practices will not change over the next 12 months while 39% anticipate a deterioration, causing a significant lengthening of DSO. Only 13% expect to see an improvement. In response, over half of the respondents from the industry (56%) plan to revise their credit policy and adjust their payment terms more frequently over the next 12 months. When asked about the outlook for the consumer durables industry, 81% of Chinese respondents said they expect business performance (sales and profits) to improve over the next 12 months.

ICT / Electronics

B2B customers use outstanding invoices as a form of financing

According to respondents in the Chinese ICT/electronics industry late payment from B2B customers is most often attributable to inefficiencies of the customer’s internal payment processes or to the fact that customers use outstanding invoices as a form of financing (60% of respondents each). Very often, B2B customers paid invoices late because of disputes over the quality of goods and services provided.

Survey findings show that an average of 48% of the total value of the invoices issued by respondents to their B2B customers is overdue, almost in line with the 47% country average. Long-term outstanding receivables (more than 90 days overdue) average 16% of overdue payments (versus a 13% average for the country). The proportion of receivables written off as uncollectable averages 4% (compared to the 3% average for the country). On average, past due invoices are cashed in within 30 days of the due date (longer than the 22 day-average for the country). DSO in the industry averages 45 days (longer than the 39-day average for the country).

Guarantee requests and self-insurance are the most often used credit management techniques

Most respondents from the Chinese ICT/electronics industry (85%) reported that they manage customer credit risk by requesting letters of credit or guarantees of payment from their B2B customers. An almost equal percentage reported that they retain and manage the risk internally through self-insurance, most often applying credit management techniques by adjusting payment terms or avoiding risk concentration through the reduction of the reliance on a single buyer.

To ensure adequate levels of liquidity to manage their business operations, many Chinese respondents in the ICT/electronics industry needed to delay payments to their own suppliers, or pursue additional financing from external sources (45% each). 35% needed to strengthen their internal credit control procedures.

ICT/electronics industry anticipates an improvement in business performance

When asked about the outlook for the ICT/electronics industry in China, 85% of respondents said that business performance (sales and profits) will improve over the next 12 months. Chinese respondents anticipate that their B2B customers’ payment practices will neither change nor deteriorate over the next 12 months (45% of respondents each). However, nearly 15% of respondents anticipate an improvement and with that a decline of past due invoices written off as uncollectable.

To protect their businesses from the adverse impact of customer credit risk, most respondents (60%) plan to increase the activities aimed at avoiding risk concentration, while a sizeable percentage of respondents (54%) will either increase their requests for guarantees of payment from their B2B customers, or the use of trade credit insurance. For 82% of respondents, dependence on bank finance will increase over the next 12 months due to an expected increase in industry indebtedness over the same period.

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