Survey findings for China

B2B customers are given longer (% of total value of B2B receivables) payment terms

58% of Chinese respondents set B2B payment terms within 30 days of the invoice date, 36% in the range from 31 to 90 days and 5% of respondents reported having granted payment terms of over 90 days from invoicing. This translates into a 39-day average (significantly above the 26-day average recorded one year ago). This is in line with figures observed in Singapore, and is below the 43-day regional average. Above average payment terms are reported by Chinese respondents from large enterprises (47 days) and enterprises in the wholesale trade sector (62 days). In contrast, respondents in the Chinese services sector reported the swiftest payment terms averaging 29 days from invoicing.

When asked about the underlying criteria for setting payment terms, nearly half of Chinese respondents (47%) reported that Past due theBy2Bseitnvpoaiycems ent terms in accordance with their company standards and internal business practices (average for the region: 51%). This suggests respondents focus on strengthening in-house credit management policies, particularly mid-sized businesses and the distribution sector. In line with industry standards are payment terms set by 42% of respondents (average for the region: 36%), while payment terms set in accordance with the credit capacity of the customer are reported by 40% of Chinese repsondents (average for the region: 25%).

Growth in the use of B2B trade credit in Chinese domestic transactions

The Atradius Payment Practices Barometer survey results show Chinese respondents transacted an average of 53% of the total value of their B2B sales on credit (up from 44% last year), and 47% on a cash basis (down from 56% one year ago). Consistent with the averages for Asia (56% sales on credit and 44% on a cash basis), the growth in credit-based B2B transactions recorded in China confirms an ongoing trend of increasing use of trade credit in the country. This represents a notable change in payments behaviour. Historically, the China survey respondents have consistently demonstrated a preference for payments in cash or cash equivalents and on terms other than trade credit.

The move towards the use of trade credit in such large numbers represents a U-turn in previously observed payment practices. Moreover, survey findings highlight that Chinese respondents from both large enterprises and enterprises in the wholesale trade sector are the most likely to sell on credit in B2B trade. Here, 61% of the sales B2B credit have been transacted domestically, with just 39% on foreign markets. This suggests that trade credit plays a key role in the Chinese business community as a source of supply chain financing. This was observed in China and in the Asia region overall (domestic 60% and foreign 40%).

Payment duration in China

d = average days Sample: companies interviewed (active in domestic and foreign markets) Source: Atradius Payment Practices Barometer – June 2020

China well above regional average in requests for payment guarantees

To mitigate customer credit risk, most Chinese respondents (81%, well above the 67% average for Asia) said that that they request guarantees of payment from the B2B customers to whom they sell on credit. This is most common among respondents from large enterprises and from the services sector. 75% of respondents either retain customer credit risk management internally through self-insurance (average for Asia: 62%), or they reduce reliance on a single buyer (average for Asia: 56%). A sizeable percentage of respondents (70%) reported to apply a balanced mix of credit management techniques, among which the most frequently used are offering a discount for early settlement of invoices, requesting a letter of credit and the adjustment of payment terms granted to customers.

Overall, almost all Chinese respondents (with the exception of many respondents from micro enterprises) reported to apply one or more credit management tools or techniques to safeguard cash flow and business profitability. This points to a stronger focus by Chinese respondents towards customer credit risk mitigation than on average in Asia, where the percentage of respondents reporting no use of credit management tools or techniques is 4%.

75%

of Chinese respondents retain customer risk management internally (average for Asia 62%).

Atradius Payment Practices Barometer – June 2020

Late payments most frequently caused by liquidity shortages

When asked about the reasons for payment delays from their B2B customers, most Chinese respondents (61%, compared to 49% for the region) reported that late payment is chiefly due to liquidity shortages or inefficiencies of the customers’ internal payment processes. This was most often reported by respondents from large enterprises and the manufacturing sector. 58% of respondents (46% in Asia overall) stated that B2B customers often use outstanding invoices as a form of financing. To protect cash flow and business profitability from late payments, many Chinese respondents (40%) said they needed to increase time, resources and costs to chase overdue invoices, delay payment of invoices to their own suppliers and strengthen their internal credit control procedures. According to the survey findings in China, 47% of the total value of B2B invoices issued by respondents remained unpaid at the due date.

This compares to an average of 52% for the region overall. With 13% of the overdue invoices extending past 90 days overdue and 3% of receivables written off as uncollectable, Chinese respondents experience a rate of very late payments and write-offs that is consistent with regional averages (15% more than 90 days overdue and 3% write offs). In addition, survey findings show that on average, Chinese respondents have overdue invoices tied up for a longer period than last year. The average overdue payments-to-cash turnaround is now 22 days past the due date, longer than the 18-day average a year ago. This is likely to be a result of diverse factors, including the adjustment of payment terms (as mentioned earlier) as well as the timing and processes used in the outstanding invoices collection. Of note, ICT/electronics is the industry in which Chinese respondents had the most difficulty in collecting outstanding debts.

In today’s challenging economic times, it is vital to safeguard the creditworthiness of the business and release financial resources to improve the investment capacity of the business. We were able to achieve both these targets by having a strategic approach to credit management.”

Uncollectable B2B receivables in China

(% of total value of B2B receivables)

Sample: companies interviewed (active in domestic and foreign markets) Source: Atradius Payment Practices Barometer – June 2020

Growth in the use of B2B trade credit in Chinese domestic transactions

The Atradius Payment Practices Barometer survey results show Chinese respondents transacted an average of 53% of the total value of their B2B sales on credit (up from 44% last year), and 47% on a cash basis (down from 56% one year ago). Consistent with the averages for Asia (56% sales on credit and 44% on a cash basis), the growth in credit-based B2B transactions recorded in China confirms an ongoing trend of increasing use of trade credit in the country. This represents a notable change in payments behaviour. Historically, the China survey respondents have consistently demonstrated a preference for payments in cash or cash equivalents and on terms other than trade credit.

The move towards the use of trade credit in such large numbers represents a U-turn in previously observed payment practices. Moreover, survey findings highlight that Chinese respondents from both large enterprises and enterprises in the wholesale trade sector are the most likely to sell on credit in B2B trade. Here, 61% of the sales B2B credit have been transacted domestically, with just 39% on foreign markets. This suggests that trade credit plays a key role in the Chinese business community as a source of supply chain financing. This was observed in China and in the Asia region overall (domestic 60% and foreign 40%).

22 days

is the average time it takes Chinese respondents to turn overdue B2B invoices into cash

Atradius Payment Practices Barometer – June 2020

Majority of respondents in China plan to strengthen internal credit control and debt collection processes

Chinese respondents reported that to strengthen their internal credit control procedures going forward they will either ask for guarantees of payment, or adjust payment terms more often. This is in addition to avoiding trade credit risk concentration by reducing reliance on a single buyer. Furthermore, 83% of respondents plan to strengthen their internal debt collection procedures. There is no clear-cut opinion among China’s respondents regarding the outlook for their B2B customers’ payment practices for the next 12 months. An average of 44% of respondents each anticipate either a deterioration of customers’ payment practices (resulting in a significant lengthening of DSO) or no change. A significantly lower percentage of respondents (12%) expect an improvement.

When asked to express their opinion about the access to finance and financing conditions for their industry in the near term, 82% of Chinese respondents reported that dependence on bank finance would increase due the increased indebtedness of their industry. On the positive side, however, 65% of Chinese respondents stated that the willingness of banks to provide credit to the business community will increase during the same period. 79% of Chinese respondents (higher than the 60% regional average) believe that the business performance of their industry, in terms of sales and profits, will improve over the next 12 months.

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