Survey findings for China

Respondents anticipate improvement in business performance due to domestic economic rebound

More businesses polled in China (31%) than in Asia (26%) told us they consider maintaining adequate cash flow levels to be the greatest challenge that they will be facing over the coming months. In addition, the containment of credit management costs will challenge businesses over the same period. This challenge presents more concern to Chinese business, compared to Asian peers. Improvement in business performance (sales and profits) is expected by more businesses in China (55%) than in Asia (52%). Only 2% in China (5% in Asia) anticipate worsening business performance, and the remainder expect their performance to continue unchanged. More businesses polled in China (53%) than in Asia (48%)

are of the opinion that the improvement in business performance will be mainly due to the consolidation of the domestic economic recovery.

Interestingly, only 5% of businesses polled in China (in contrast to one third of those polled in Asia) anticipate that the improvement in their business performance will come exclusively from exports. Offering trade credit to B2B customers will continue to be an established business practice among businesses polled in China. In particular, more Chinese businesses (44%) than their peers in Asia (36%) believe that sales on credit will be even more common going forward to allow customers time to pay invoices.

China: how do you expect your business performance to change over the coming months?

Which key developments will drive your business improvement?

Use of trade credit insurance on the rise over the coming months

More businesses in China (40%) than in Asia (37%) anticipate using trade credit insurance more often over the coming months. 53% of businesses told us they believe this approach should help keep DSO levels stable (regional average: 48%). Fewer businesses polled in China (32%) than in Asia (38%) believe that DSO will deteriorate over the coming months, and more businesses in China (14%) than in Asia (10%) anticipate improvement in cash flow over the coming months. To mitigate the impact

of customer credit risk associated with the increased extension of trade credit over the coming months, more business polled in China (45%) than in Asia (42%) said they plan to request guarantees of payment from their B2B customers. In addition, more businesses in China (43%) than in Asia (38%) anticipate performing frequent adjustments of credit terms, to account for fluctuations in the credit risk profile of their customers.

40%

of the businesses polled in China anticipate using trade credit insurance more often over the coming months. (regional average: 37%)

Atradius Payment Practices Barometer – June 2021

More than half of all sales were made on credit last year

An average of 55% of all B2B sales were made on credit in the year following the outbreak of the pandemic. This is largely in line with regional peers in the ICT/electronics and agri-food industries, although the Chinese chemicals/pharma industry reported higher use of trade credit than at a regional level. Domestic trade drove much of the use of trade credit, with the total value of credit sales to domestic customers averaging 60% and foreign customers 40%. The use of trade credit on the Chinese market is part of a wider trend showing signs of its increased adoption, alongside a rebalancing of its economy from investment-led growth to household consumption.

Although a majority of Chinese businesses (45%, regional average: 41%) told us that their use of trade credit remained consistent with last year, an increase in the use of trade credit in the months following the

outbreak of the pandemic was reported by 42% of businesses (average for Asia: 44%). Only a minority of business polled in China reported turning down credit requests, and of these, this was usually due to deterioration in the credit quality of the customer.

A preference for cash sales was reported by 47% of the poll’s respondents, a similar proportion to the numbers favouring credit sales. however, this is notably lower than the 58% average in Asia as a whole. In terms of the total value of credit sales, 55% of Chinese businesses (regional average: 45%) reported no change. When looking at the reasons for offering trade credit, the majority of the businesses reported using credit to encourage repeat business with established customers, although significant numbers also cited the desire to win new customers and to compete in their markets.

China: top 5 greatest challenges to business profitability in 2021

China: on average, within what time frame do your B2B customers pay their invoices?

Credit management costs increase during the pandemic

The central role played by credit in Chinese trade will incur costs, which need to be carefully managed. Poorly managed trade credit can outweigh revenue arising from sales, especially if profit margins are tight. As the survey data shows, 49% of the businesses polled reported an increase in trade credit administrative costs in the year that followed the pandemic outbreak.

This result is largely in line with those reported across the region. This was particularly due to cost of acquiring

credit information to assess the creditworthiness of the customer. More business in China (44%) than in Asia (42%) reported an increase in the cost of collecting on invoices. Conversely, businesses reporting increased financing or interest costs in the year that followed the pandemic outbreak were 36% in China and 43% in Asia. Those reporting increased costs associated with bad debt were 23% in China and 33% in Asia.

China payment terms longer than Asia average, most often reflecting company standards

Businesses polled in China extended payment terms averaging 67 days from invoicing (regional average: 54). This pattern also extended to payment terms above 90 days (reported by 13% in China and 9% in Asia as a whole). Longer payments terms mean greater exposure to the risk of payment default from the customer. In the year following the outbreak of the pandemic, most of the businesses polled in China (60%) did not alter their average payment terms (regional average: 55%), while 32% told us that they granted longer terms (regional average: 35%), most often up to one month longer. Only a minority of the businesses we polled reduced payment terms over the

past 12 months.

Almost half of the survey respondents in China (49%, regional average: 53%) said payment terms were granted according to company standards. 46% of respondents chose to reflect the payment terms of their own suppliers (more than the regional average of 42%). In addition, 42% reported taking the credit capacity of the customer into account and 42% extended terms in line with industry standards (regional average: 39% for both). 18% set terms that were influenced by the bargaining power of the customer, a lower percentage than the regional average of 23%.

64 days

average time for Chinese suppliers to collect overdue B2B invoices.

Atradius Payment Practices Barometer – June 2021

Time taken to settle invoices holds steady

58% of respondents saw no change in payment timings over the past 12 months (particularly among large ICT distributors). 36% (regional average: 40%) told us that customers delayed payments over the same time frame. No respondents reported a speeding up of invoice payments in China, although this was recorded by 6% of businesses across Asia.

Trade debt in China represents an average of 46% of the total value of all B2B credit sales in the country (regional average: 50% average). 4% of long-term outstanding invoices (over 90 days) were written off as uncollectable (regional average: 5%).

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