Supplier payment terms are not a narrow finance issue. In the auto industry, they can determine whether the wider supply chain remains healthy.
A payment issue with industry-wide consequences
On September 15, the China Association of Automobile Manufacturers issued an initiative on payment standards for vehicle manufacturers and suppliers. It covers order confirmation, delivery, acceptance, payment, settlement and contract periods.
The principle is clear: large automakers should not use their bargaining power to damage supplier interests, and vehicle and parts companies should build a healthier cooperative ecosystem.
Seventeen automakers that had made payment-term commitments responded publicly. Their joint statement comes after a series of supply-chain disputes caused by delayed payments.
The old cash-flow trade-off
For years, some automakers used long payment terms to improve their own cash flow. The cost was pushed onto suppliers, creating a cycle of delayed payment, cash loss and reduced innovation.
A common structure in China has been 90-day payment terms plus six-month commercial acceptance bills. In practice, suppliers can wait more than 180 days from delivery to actual cash receipt. Data cited in the article show that in 2024, listed Chinese automakers had an average accounts-payable turnover period of 182 days, 4.5 times the 40.5 days seen among German carmakers and three times the 60.5 days among US carmakers. Some companies exceeded 240 days.
The impact is severe for smaller suppliers. If a parts company supplies about $1.4 million in products and waits 10 months for payment, it is effectively providing the automaker with interest-free working capital while still funding production, labour and materials.
Many small suppliers then borrow to keep production running. Debt pressure can force them to cut prices, creating a cycle of borrowing to produce and discounting to repay.
Commercial bills add pressure
The use of commercial acceptance bills can make the problem worse. Unlike bank acceptance bills, they are backed by companies rather than banks and carry higher risk. They are harder and more expensive to discount into cash.
A finance chief at a new-energy automaker supplier cited in the article said that when automakers issue six-month commercial bills, suppliers may face annualised discounting costs of 12 per cent if they need cash early. A 2023 commercial-bill market report showed bills issued by central state-owned finance companies commonly carried rates of 1.2 per cent to 2.5 per cent, while private listed companies reached 3 per cent to 6 per cent.
The China Iron and Steel Association has also criticised some automakers for using supply-chain finance platforms to extend payment terms in disguised ways. Suppliers then become, in effect, free banks for automakers.
The problem is especially visible during the rapid expansion of new-energy vehicles. In December 2024, auto supply-chain companies accounted for 37 per cent of commercial-bill acceptors on overdue lists, with new-force automakers' overdue rate 2.3 times the industry average.
One tier-one supplier cited in the article had effective financing costs of 18 per cent because of bill discounting. Its cash-conversion cycle extended beyond 180 days and R&D spending was forced down by more than 40 per cent. Changan Automotive Supply Chain Research Institute estimated that commercial bills raised suppliers' actual capital costs by 2.8 percentage points, eroding 15 per cent of the industry's average net margin.
Innovation and resilience suffer
Long payment terms do more than strain cash. They weaken the innovation capacity of the whole chain.
Small and medium-sized companies contribute more than 70 per cent of technical innovation in the auto supply chain, according to data cited in the article. If they spend most of their energy surviving cash pressure, investment in new materials, process upgrades and technical improvement falls.
The resilience problem is more hidden but just as serious. In 2024, Neta Auto was reported to have halted production after delayed payments to several key suppliers. Those suppliers included companies providing structural body parts and electronic control systems. Once their cash chains broke, vehicle production stopped.
That shows why the issue is a domino problem. Automakers may gain short-term cash advantages by stretching payables, but if strong suppliers collapse, the vehicle manufacturer eventually loses production capacity and market opportunity.
The 60-day framework
China began formalising payment protections five years ago. On July 5, 2020, the State Council issued rules requiring large companies purchasing goods from small and medium-sized enterprises to pay within 60 days of delivery. The rules took effect on September 1 that year.
The early version created a legal basis, but left room for flexibility because it did not clearly define when the clock started and did not strictly limit commercial bills.
Revised regulations announced in March 2025 introduced three important changes. First, the payment clock starts from the date of qualified acceptance, with acceptance generally required within three working days. Second, companies cannot force small and medium-sized suppliers to accept commercial bills or use non-cash methods to extend payment terms. Third, overdue payments carry penalty interest of 0.05 per cent per day, equal to an annualised 18 per cent.
After the rules took effect on June 1, GAC, FAW, Dongfeng, Seres and Geely announced on June 10 that they would keep supplier payment terms within 60 days. Within 48 hours, BYD, Changan, Xpeng, Xiaomi and others followed.
On July 9, the Ministry of Industry and Information Technology opened an online complaint channel for problems involving key automakers' payment commitments, including breaches of the 60-day pledge, disguised extensions, forced commercial-bill acceptance and other violations.
From commitment to execution
Implementation remains difficult. Some suppliers say old contracts have not been adjusted in time, a few automakers use quality reviews to delay payment, and lower-tier small suppliers do not always receive the benefits of shorter payment terms quickly.
That is why the September 15 industry initiative matters. It tries to define acceptance periods, payment starting points and operating details more clearly.
The reform will not be completed by statements alone. It requires automakers, suppliers, regulators and industry groups to treat payment discipline as part of industrial competitiveness.
China's auto industry cannot build a world-class supply chain if its suppliers are financing manufacturers under constant strain. A healthier payment culture is not charity. It is a condition for stronger innovation, greater resilience and more sustainable competition.
