- The Coface survey shows that more companies have expressed their willingness to grant payment deadlines in 2023, but that they have tightened payment deadlines to 70 days compared to 81 days in 2022.
- As credit terms shortened, more late payments were reported in 2023. However, average late payments decreased to 64 days from 83 days previously.
- The downward trend in ultra-long payment terms (ULPD, greater than 180 days) continued.
- The construction sector continues to experience the longest payment delays (84 days), while textiles appear to present the highest non-payment risks.
- More than half of those surveyed expect economic conditions to improve in 2024, although the slowdown in demand is expected to be more pronounced this year. Fierce competition was still considered the biggest risk to business operations in 2024, but it is expected to ease from 2023 onwards.
HONG KONG SAR – Media OutReach Newswire – March 19, 2024 –
Junyu Tan, North Asian economist at Cofacesaid:
“2023 was the year when economic activities generally normalized after the pandemic. The same was true for companies’ business practices regarding payment terms. As competition and practices in the market returned normal, more and more companies have taken the initiative to grant payment deadlines.
Average payment term by sector (days)
But companies have become more cautious and offered stricter payment terms. The Coface 2024 China Business Payments Survey showed that average payment terms decreased in 2023. The use of risk management tools was also more widespread among businesses.
Stricter payment terms have led to an increase in late payments. But this does not necessarily mean a deterioration in the cash position of companies. If we add payment terms to payment terms, the total average waiting time between purchasing a product and paying an invoice – called sales waiting days (DSO) – has increased from 140 days in 2022 to 136 days in 2023. This may indicate an improvement in payment terms. business cash flow cycle.
Looking ahead to 2024, 53% of our respondents expect the economic outlook to improve as political support increases, market competition eases, and inventory burdens decrease. The slowdown in demand in 2024 should prompt the government to spend more to stabilize growth. »
Payment delays1: No more delays reported, but duration shortened
62% of our respondents reported late payments in 2023, compared to 40% in 2022. But an increase in the frequency of late payments does not necessarily equate to a deterioration in the cash flow situation of companies. In 2023,
payment times have been significantly reducedfrom 83 days in 2022 to 64 days.
The investigation also showed
a continuing downward trend in ultra-long payment terms (ULPD, greater than 180 days) exceeding 2% of annual turnover, a high non-payment risk threshold – 80% of these late payments have never been paid according to Coface’s experience. Only 33% of respondents reported such delays, the second lowest level since 2014.
Construction It is still in this sector that payment delays are the longest (84 days), with real estate developers remaining subject to serious financial difficulties and persistent weakness in sales of new homes.
Textile appear to present the highest risks of non-payment (ULPD exceeding 2% of turnover) in the event of delay. But the situation is unlikely to improve in 2024, as pent-up demand recedes and labor costs rise.
Intense competition has been cited as one of the main reasons for customers’ financial difficulties, which may be partly due to excess capacity in certain industries. However,
cost pressure does not appear to pose a significant burden for Chinese companies, which is consistent with China’s relatively low inflationary environment.
Economic expectations: competition will ease, but demand outlook is unfavorable
Looking ahead, increased policy support could provide some confidence to businesses, as 53% of respondents remain optimistic about the economic outlook in 2024.
Drugs appeared to be the most optimistic due to structural demand resulting from population aging.
Car And
construction also outperformed as policy support for electric vehicles and infrastructure investment is expected to continue to expand.
Textile was most pessimistic, as pent-up demand is expected to decline in 2024 and labor costs to increase.
Fierce competition was still seen as the biggest risk facing companies’ operations in 2024. But with many companies offering deep discounts to boost their sales in 2023, competition is expected to ease in 2024 as inventory burden decreases . But
slowdown in demand The situation is expected to be more serious as demand for reopening fades while household incomes and corporate profits have yet to provide new dry powder. In this regard, the government may need to increase spending to stabilize aggregate demand.
Average payment term by sector (days)
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