As customers delayed payments in the wake of economic deceleration, firms in China are waiting two times as long for payments than they did in 2015.
It took 54 days on average for private manufacturers to receive payment in the first three quarters of 2020 compared to 45 days last year and 27 days five years prior, the Financial Times reported, citing official information.
A number of private firms, headed up by manufacturing firms, are contending with lags in payment after a jump in credit sales, even though business activity is bouncing back in the second-biggest economy in the world.
In the first nine months of 2020, Chinese manufacturing facilities registered a 14.3 percent rise in accounts receivable, which is said to be the quickest increase in six years.
“The receivable problem is across the board,” Hang Seng Bank China Economist Wang Dan said, per FT. “It suggests the economy is not in a normal shape.” The economist also noted that the challenge with payments owed “suggests the economic recovery remains weak.”
The owner of one manufacturing facility in the country noted that there isn’t a lack of demand, but the hurdle is discovering when one can receive payment. He makes customers finish payment three months following product delivery at the latest; however, over two-thirds requested an extension in the current year.
COVID-19 has led companies of all sizes to take another look at their accounts receivable processes, where days sales outstanding (DSO) – the number of days it takes to collect payments – are being stretched, which is directly caused by late payments.
As noted in the B2B Payments Innovation Readiness Report, long-held manual workflows have led firms to grapple with collections. Research throughout 460 companies shows that, on average, 14.7 percent of B2B receivables are past due. Sixteen percent of B2B receivables of companies that yield $500 million in yearly revenue are past due.