Despite recent promises by several major Chinese automobile manufacturers to speed up payments to their suppliers, many smaller, lower-tier vendors continue to be under great financial pressure as they are forced to wait extended periods to receive payment from their big clients.
Large companies have a lot of leverage when it comes to setting payment terms, according to Yicai research. Eight listed battery manufacturers waited on average 103 days to receive payments last year, but it took them an average of 255 days to pay their own suppliers.
Battery giant Contemporary Amperex Technology, for instance, had an average accounts receivable cycle of 65 days, but it only paid out on average after 259 days. Other battery makers such as EVE Energy, Farasis Energy, Gotion High-tech, CALB Group, and Guangzhou Great Power Energy and Technology took even longer to pay than Ningde-based CATL.
Yicai also looked at 255 automotive parts companies listed on the mainland and found that they waited 116 days in general to receive payment and took an average of 142 days to pay their suppliers. This means that small and medium-sized enterprises that are further up the industrial chain are having to wait a long time to get paid.
In general, the higher the market value of the parts suppliers, the shorter the payment collection times and the stronger their ability to get paid. For example, Fuyao Glass Industry Group normally received payment within 81 days, for Zhejiang Wanfeng Auto Wheel it was 44 days, and for Ningbo Joyson Electronic Corp. it was 79 days.
Earlier this month, 17 leading carmakers said they would shorten payment terms to within 60 days. However, analysts say that big auto parts suppliers also need to do likewise and stop relying on their upstream partners’ cash flow to grow their own business.
As the China Iron and Steel Association put it, companies along the industrial chain need to be more aware of the overall situation. Big firms especially should set a good example by taking the lead in combating “involution,” which refers to excessive and self-defeating competition, and promoting the healthy development of the industrial chain.
