China: greater role for B2B trade credit

In China, trade credit set to play a greater role in domestic B2B transactions China: greater role for B2B trade credit In the current challenging economic times, it is essential for Chinese businesses focus on strengthening their customer credit risk management and debt collection processes. Introduction The survey questionnaire was completed by Chinese businesses during March 2020. By mid-March, for the first time, China reported no locally-transmitted cases of COVID-19, leaving behind a January-February nationwide shutdown aimed at containing the spread of the pandemic. The impact that the virus had on China’s domestic economy and on its growth forecasts for this year are still to be fully assessed. However, most Chinese respondents believe that the economy will improve significantly over the next year. Key takeaways from the report Our survey shows an increase in the total value of B2B sales on credit offered by businesses in China and indicates that trade credit is set to play a greater role in domestic B2B transactions. This clear trend towards the use of trade credit contrasts sharply with previously observed payment practices in the country, which tended to favour cash payments. Interestingly a significant majority of respondents to our survey, well above average for Asia, reported that they request guarantees of payment when selling on credit. What’s more, nearly everyone interviewed reported using one or more credit management tools to protect their accounts receivable. This demonstrates a high level of financial sophistication among Chinese businesses of different sizes and across sectors that are actively seeking a competitive edge while promoting short-term financing options and protecting cash flow. Key survey findings for China Growth in the use of B2B trade credit in Chinese domestic transactions B2B customers are given longer payment terms China well above regional average in requests for payment guarantees Late payments most frequently caused by liquidity shortages Majority of respondents in China plan to strengthen internal credit control and debt collection processes Interested in getting to know more? For a complete overview of the payment practices in China and in the chemicals, consumer durables and ICT/electronics industries in China, please download the complete report.