Carmakers expedite paying suppliers

In an effort to boost cash flow efficiency and safeguard industrial ecosystem stability, Chinese automakers have vowed to shorten payment timelines to their suppliers to within 60 days.

Starting Tuesday evening, a batch of major auto manufacturers — such as BYD, China FAW Group, Seres Group, Geely Auto, Chery, Xpeng and Xiaomi Auto — officially pledged to implement the new 60-day payment cycle in order to ensure a resilient supply chain.

"Some automotive suppliers have long struggled with excessively extended payment cycles, sometimes stretching as long as nine months or more," said Zhang Hong, a new energy vehicle industry expert at the China Automobile Dealers Association.

Zhang added that the situation has left many small- and medium-sized enterprises (SMEs) under severe financial strain, forcing them to rely on costly short-term loans or bill discounting just to stay afloat.

"Prolonged payment terms not only tighten suppliers' cash flow, but also restrict their ability to invest in research and development, as well as production, which in turn can impact the quality and innovation capacity of vehicle manufacturers themselves," he said.

Zhang also emphasized that fostering healthier, more balanced partnerships between automakers and suppliers offers additional advantages, such as more favorable pricing, higher product quality, and better services during procurement negotiations — all of which improve a carmaker's competitiveness in the market.

In the auto heavyweights' statements, they described the decision as a proactive response to the newly revised regulation on ensuring timely payments to SMEs, issued by the State Council, China's Cabinet, and came into force on June 1.

In addition to rules on payment cycles within 60 days of delivery, the regulation also prohibits "back-to-back" payment clauses that tie supplier payments to the progress of third-party payments, closing a loophole that has long delayed receivables for smaller suppliers.

By employing their own supply chain finance platforms for payments, "some automakers have shifted their intensified financing and pricing pressures onto upstream suppliers by extending contract payment terms," said the China Iron and Steel Association in their earlier statement.

The CISA also called on the auto sector to abandon unsustainable practices such as cutthroat competition and build a consensus around self-discipline, urging companies to make technological progress the core driver of competitive advantage.

In this regard, setting a strict payment timeline is also seen as a broader move to halt brutal price wars and promote fairer competition among automakers.

"Price-cutting, as the most visible form of cutthroat competition, is often made possible by squeezing procurement prices of parts and components," Zhang of CADA warned, adding that if the payment pressure on suppliers is not eased, automakers will continue undercutting prices at the expense of the upstream supply chain.

In actual practice, Zhang also cautioned that corporate pledges alone may not be enough to guarantee timely payment to suppliers. "It is also necessary to mandate cash payments and prohibit the use of six-month bank acceptance bills and similar instruments to prevent delays in fund settlements," he added.

lijiaying@chinadaily.com.cn