Credit managers might want to revisit their payment terms when it comes to extending credit in China. According to a recent report from credit insurer Coface, payment terms with Chinese businesses significantly increased in 2017, leaving risk managers "more complacent" in regards to their current expectations.
On April 3, Coface released its China Corporate Payment Survey for 2018, consisting of more than 1,000 company responses that were collected during the fourth quarter of 2017. The results showed an eight-day increase in the average payment terms from the prior year, although respondents who reported payment delays dropped to 29% from 46% in 2016. Some of the data baffled economists, particularly because of the country's economic successes over 2016—its GDP jumped about 0.2%.
"The proportion of respondents experiencing payment delays exceeding 120 days increased to 26% in 2017 from 19% in 2016, while those experiencing ultra-long (more than 180 days) payment delays exceeding 2% of their annual turnover increased…," Coface reported.
Companies' cash flow is then at risk, the report explained, because 80% of ultra-long payment delays don't get paid and, therefore, impact the company's annual turnover. These delays are more prevalent in the energy, construction and automotive sectors; however, they're lower in paper and textiles, as well as the pharmaceutical sector.
-Andrew Michaels, editorial associate