China firms plagued by payment delays, with big cash-flow risks, survey finds

Longer credit terms contributed to fewer incidents of payment delays last year, Coface found, as 40 per cent of the polled companies reported overdue payments, down from 53 per cent a year prior.

Strict coronavirus controls, China’s economic slowdown and rising raw material costs were among the main reasons cited for such delays, the report said.

John Lin, a project manager at a state-owned enterprise in Guangdong, has been seeking to collect a long-overdue payment owed by a local government in nearby Fujian province.

“The local government is in relatively good financial shape, but it still owes us the payment for an energy-saving project that has been in arrears for more than five years,” Lin said. “We are considering suing the official department for the arrears but were told by legal advisers that, currently, many local government departments do not repay the arrears on time. And once the litigation process is started, the process can take up to two or three years.”

It’s becoming harder to get the money owed to you by your state-owned-enterprise clients Terry Feng, private subcontractor

The survey findings showed that more polled companies offered credit loans above 90 days. The report also noted that more firms favoured credit terms of less than 30 days, “likely reflecting the increased caution that these respondents have towards cash flow and credit management amid higher market uncertainty and weaker growth”.

As a result, the average payment terms increased to 81 days in 2022 from 77 days the previous year.

The survey reported a sharp rise in the proportion of companies that reported unchanged or decreased amounts of overdue payments – to 79 per cent in 2022 from 58 per cent in the previous survey. But small businesses that relied on the domestic market saw a rising total of overdue payments.

“It’s becoming harder to get the money owed to you by your state-owned-enterprise clients. They will let us pay the wages of migrant workers in time, but other payments are not always paid on time,” said Terry Feng, a private subcontractor of a state electricity project in southern China.