China Has Its Own Late Payments Problem

The declining stamina of China’s economy has investors and markets the world over on edge. The sources behind that decline are numerous, but recent reports are pointing to one factor that is likely to make matters worse.

Reports in Reuters U.K. published Friday (Feb. 5) said outstanding invoices and late payments between buyers and suppliers are accelerating the cash bleed among the nation’s corporations.

Analysis from the newswire of the working capital of 1,200 companies in the country found that, overall, these businesses are waiting about 59 days to get paid from corporate customers, compared to the average of 37 days payable outstanding seen in 2011.

[bctt tweet=”Chinese firms are waiting about 59 days to get paid from corporate customers.”]

For businesses in the energy sector, that wait time can be as high as 80 days — up from just 24 days in 2011, reports said. Industrials wait 91 days to get paid; information technology firms wait 112.

Research from Fergal Power, a partner to KPMG China, found its own evidence that businesses in China are failing to improve the nation’s overall economic strength. According to analysts, businesses have “less discipline in managing working capital in China than we have seen in other markets” and are prioritizing market share and revenue growth when finances are good.

“The rate of growth of receivables has exceeded sales growth in the industrial sector for the past few years,” stated Bank of Tokyo-Mitsubishi UFJ Analyst Cliff Tan. “The picture one gets from the data is that this is a nagging problem.”

Researchers also pointed to China’s shadow banking economy as a factor exacerbating companies’ working capital management problems. According to reports, longer B2B payment times are causing inventory levels to rise; corporate cash gets tied up in assets, and there is a trickle-down effect, causing tightened employee wages and other negative impacts.