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Experts Push Development of Chinese Accounts Receivable Management Industry

Source: China Daily March 8, 2005

Huge amounts of delinquent accounts receivables are hampering the growth of Chinese exporters, meaning that the development of the receivable management industry is an urgent task, experts said yesterday.

While the growth of China's foreign trade continued to accelerate after its accession to the World Trade Organization three years ago, exporters also saw a growing number of receivables going sour.

Foreign importers failed to pay nearly US$30 billion on time for commodities they bought from China last year, according to Li Kai, deputy director of the State Information Centre (SIC), a think-tank under the National Development and Reform Commission.

"Solving those problems will have a major effect on improving the efficiency of trade companies and promoting China's foreign trade," he told a seminar yesterday, which was sponsored by the centre and Receivable Management Services (RMS).

Foreign trade companies are faced with an increasing number of risks, especially political risks such as instability and foreign exchange controls, and commercial ones such as buyers' refusal to take over goods due to bankruptcy or market upheaval, said Deborah Ho, RMS managing director in Hong Kong.

And, largely due to intensifying competition, Chinese exporters are increasingly accepting payments through letters of payment (L/C), resulting in a growing number of delinquent payments. Around 70 per cent of payments made to Chinese export companies are in the form of L/C payments, compared with 10 per cent to 20 per cent for US export companies.

The situation was of particular concern from 1990 to 1995, when the delinquent accounts of some Chinese importers even exceeded their profits, Ho said.

"The delinquency rate of some enterprises was even as high as over 30 per cent, much higher than that of enterprises in Western countries," she said.

But a host of problems, such as a lack of knowledge of local laws and customs, communications and language barriers and the absence of a local presence, are significantly hindering efforts by Chinese exporters to recover payments from overseas.

To help Chinese exporters recover delayed receivables from overseas, and to tap the promising business, RMS, the largest commercial receivable management services company in the world, set up a joint venture in September last year with the China Economic Information Network, an information network developed by the SIC and other government agencies.

The new company - CEI-RMS Receivable Management Co Ltd, will soon launch a website to provide Chinese foreign trade companies with information on receivable management, as well as access to RMS's global database and services.

"The longer a customer waits to collect on a receivable, the amount collected drops dramatically," said Michael J Kronenfeld, chief financial officer of RMS.

"If a manufacturer waits just 90 days, they will collect only 74 per cent on every dollar billed," he said. "In China, this number will be a lot less."