Most companies use amicable negotiations as their recovery action, finds a survey
Ninety percent of companies are facing overdue accounts in China, according to a new survey.
Twenty percent of the respondents also have to deal with overdues of more than 60 days.
The Coface survey, Corporate Credit Risk Management in China, said terms of payment between companies in China are continuing to be extended.
Increased market competition forces companies to grant credit by extended terms of payment to their customers, according to the research. This financial situation leads to a increase in overdue accounts and rising raw material prices. The recent freeze on bank credits could make the situation worse in 2008. said the report.
The survey underlines that the use of open account is more and more frequent among companies established in China. More than half of the companies interviewed were using open account as their most favourite payment term, while the letter of credit, still widely used some years ago, is now hardly used.
Furthermore, payment terms are being extended. Companies are granting payment terms of an average of 90 days, whereas “the norm in 2004 was more for 60 days”.
Yves Zlotowski, chief economist of Coface, commented: “More than 80% of the respondents use amicable negotiation as their main recovery action. Business climate in China, and specially creditor protection, is weaker than in the other emerging countries. China is rated A3 whereas the Business Climate Rating is B,” reminds Yves Zlotowski, referring to the new Business Climate Rating, launched by Coface on the 22nd of January 2008. Indeed, the survey shows a growing concern about corporate governance and risks of fraud.
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