B2B Payments

Unpaid Debt Weighs Chinese Firms Down

As the Chinese economy continues to cool, companies are waiting longer and finding it harder to get paid for goods and services that have already been sold, leading to record amounts of receivables and potential write-offs, on corporate balance sheets.

For example, Longyuan Construction Group Co, an east China builder of high-rise offices, apartments and highways, receivables last year inched up 4.9 percent to 4.1 billion yuan ($657.3 million), while on average collection times extended to 95.2 days, compared with 76.3 days for 2011.

Longyuan has had to delay its own payments to steel and cement suppliers, Zhang Li due to the slow collection of money from its clients.  As Zhang Li, the company’s board secretary, told Reuters, “If you don’t pay me and I pay others, aren’t I just a sucker?” said Zhang. “I’m not that stupid.”

Growth in China’s economy dipped to an 18-month low in the first quarter and may be on track this year for it’s weakest ever in more than two decades.

Beijing policymakers are moving to put the world’s second largest economy on a more sustainable footing that is less driven by exports and investment. Yet tightening credit and a faltering real estate market have raised concerns about a sharper-than-anticipated slowdown.

According to Thomson Reuters, corporate receivables reached an average of $160.49 million at the end of last year, more than double the $65.9 million average at the end of 2009.

Over the same period, the median collection time for billings crawled up from 71.4 days to 90.42 days. This is the first time in a decade that China’s market-listed firms averaged more than 90 days.

It’s a pretty loud warning bell,” said Paul Gillis, an accounting professor at Peking University’s Guanghua School of Management. “Companies cannot pay-off their receivables in a slowing business cycle. Some of these receivable may not get paid, which means you’ll see a lot of write-offs in the future.”

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