Suppliers, Payment Terms and China

On the FMKT alumni chat board on Yahoo, a member recently asked a question about typical payment terms in China. I thought the response of a former colleague who chimed in was worth reprinting here (he works for a Fortune 500 company in the region) if you're curious about supplier expectations in the region. He notes that "for commodities, depending on your volume and the supplier you are dealing with, you can typically expect initial orders to have cash against documents before they will let it leave the mainland. In some cases, they may even ask for a downpayment. After you have established a payment history, you can renegotiate these terms quite successfully...With cash tight, the Chinese suppliers are wanting payment and not wanting to take risk of a default of payment from the buyer after 30-60 days transit time."

According to some data I was able to get from D&B at the end of 2008, 23.6% of payments due within China are 30 days + agreed upon terms past due. This number is actually low in comparison to India (at 52.1%) but higher in relation to South Korea (17.7%). Still, Chinese suppliers are feeling the pain of the downturn as much as anyone and as banks pull in the credit reigns and restrict access to working capital further, suppliers are more likely to insist on upfront payment terms (or, once a relationship is established, are likely to take advantage of early payment discounts).

- Jason Busch

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