Source丨Snow Leopard Finance Han Xing. Chinese people have always valued the principle of "money in hand"—only when money is in one's own pocket does it count as actual gain, and business operations are no exception. Timely collection of accounts receivable is a prerequisite for healthy corporate cash flow. However, in recent years, there have been frequent cases of SMEs facing operational difficulties due to excessively long payment terms. Payment terms refer to the period from when a supplier delivers goods to when the retailer pays. Suppliers prefer shorter terms to quickly recoup funds and support continuous production. When both parties have equal bargaining power, reasonable payment terms allow money and goods to circulate more efficiently. But when bargaining power is imbalanced, payment terms become a weapon in negotiations. Some large enterprises extend payment terms to several months or even over half a year. With the rise of e-commerce platforms, platforms have become major retailers, especially those operating on a self-operated model, playing a role similar to traditional retailers. Compared to offline retail, platforms affect a wider range of merchants and have a deeper impact. When large platforms play games with payment terms, merchants suffer greatly. Excessively long payment terms have become a hidden operational cost for SMEs, sometimes leading to business difficulties. Eliminating this industry malaise is urgent.
Time is the Lifeline For small and medium-sized merchants, cash flow is the lifeblood, and time is the lifeline. In 2022, Cooper Electronics, a well-known Bluetooth headphone OEM, was forced to halt production and dismiss all employees due to a broken capital chain caused by massive inventory backlog and cross-border sellers defaulting on payments. In 2024, "Shao Nv Kai La," a top influencer women's clothing brand with over 5 million followers, went bankrupt, leaving more than 200 suppliers owed over 30 million yuan. The reasons that crushed Shao Nv Kai La included operational risks from high return rates and high inventory, compounded by cash flow pressure from long e-commerce payment terms and slow payment collection. The issue of payment terms is long-standing. In earlier years, the founder of a domestic essential oil brand publicly criticized platforms for excessively long payment terms. A domestic computer brand also announced its withdrawal from the 618 shopping festival due to concerns over extended platform payment terms. Public data shows that e-commerce platforms typically set payment terms for merchants ranging from 3 to 60 days. The time consumers take to confirm receipt and when the platform transfers money to merchants both affect the length of payment terms. At certain times, the "double whammy" of inventory and payment terms often becomes the last straw that breaks the camel's back. This is why some e-commerce merchants, OEMs, and suppliers who have operated for years or even over a decade choose to cease operations and "retreat" en masse when facing intense price competition and high return rates. Previously, a self-operated e-commerce platform extended payment terms by 15 days, triggering collective dissatisfaction among its suppliers. However, in most cases, small and medium-sized merchants and suppliers still choose to compromise. Large platforms have high traffic and large sales volumes, making them the primary sales channels, and SMEs without bargaining power often have no choice but to accept the payment terms set by platforms. The problem of excessively long payment terms is also prevalent in offline retail, such as large supermarkets, physical retail, and manufacturing, including the automotive industry. Corporate accounts receivable, prepaid accounts, and inventory are the three major asset classes in the supply chain. According to CIC Consulting, from 2019 to 2023, accounts receivable grew the fastest among these three asset classes, with a compound annual growth rate exceeding 10%. Due to the poor risk resistance of SMEs and their high demand for rapid capital recovery, a new form of supply chain finance has emerged: lending money to SMEs to help them maintain cash flow and survive the payment term. However, borrowing itself incurs additional interest expenses, treating symptoms rather than the root cause. Some large enterprises also use supply chain finance tools to deduct points when settling with suppliers in urgent need of cash, and such "bad business" further erodes the profit margins of SMEs. Especially in the current industry environment, domestic SMEs face more intense competition, and the importance of cash flow is increasingly prominent. Merchants generally have a need to shorten payment terms, which is not only about profit but also about survival.
The Abused "Credit Trade" The first lesson in finance often introduces the concept of time cost. The value of money is not only determined by its face value but also changes over time. In other words, 100 yuan today is not equal to 100 yuan tomorrow. The essence of payment terms is the occupation of funds over time. The longer the occupation, the more returns the funds generate, and the party with stronger bargaining power in the supply chain often benefits from longer fund occupation, but this also deviates from the original purpose of payment terms. Payment terms originated from "credit trade" in the retail industry. Unlike traditional transactions where goods are exchanged for money on the spot, modern trade involves large amounts of money, making it difficult for retailers with large purchase volumes to settle in one lump sum. Therefore, suppliers supply goods first and allow retailers to settle the payment at a future date. For example, retailers can settle with suppliers after selling some goods and generating revenue, which saves funds, facilitates cash flow turnover, and reduces risk. Early credit trade required retailers to pay a certain percentage as a deposit and settle the full amount within the specified payment term. However, with the emergence of large retailers, brand endorsement began to replace deposits, allowing large enterprises to directly take goods from suppliers, and payment terms became increasingly longer. In this process, some global multinational retail enterprises extended payment terms and used accounts payable to purchase asset portfolios for "wealth management," reaping huge profits. Credit trade began to deviate from its original purpose and gradually evolved into a tool for profit-making. In recent years, with the rise of e-commerce and changes in supply-demand dynamics, large e-commerce platforms with traffic advantages have replaced offline retailers as the main sales channels and have gained absolute bargaining power in the supply chain. Wholesalers and SMEs rely on platforms to sell goods, so they have to accept that their funds will be occupied by the platform for a period. The "Regulations on Ensuring Payment of Amounts Owed to Small and Medium-Sized Enterprises" issued in 2020 stipulates that unless otherwise agreed in the contract, the payment period shall not exceed 60 days. However, some e-commerce platforms still have payment terms exceeding 60 days, and even 60 days is still too long for SMEs with weak risk resistance. Ma Ke, executive editor of Caijing magazine, once wrote that the victims of excessively long settlement periods are mainly SMEs, and the perpetrators are mainly large enterprises, especially industry leaders. The article also stated that companies keen on price wars are often those that like to squeeze suppliers and often have excessively long payment terms. But this is an interconnected ecosystem. Even large enterprises need a stable supply system, and frequently changing suppliers using payment terms as a bargaining chip is not conducive to their long-term stable operation.
Who Will Cut the Noose? Not all games are zero-sum, and winner-takes-all is not a long-term solution. Excessively long payment terms have become an industry malaise, putting pressure on the supply side and affecting participants in all aspects of consumption. SMEs play an important role in China's economic development, contributing 60% of GDP, over half of tax revenue, more than 70% of technological innovation achievements, and serving as the "reservoir" for 80% of employment. However, due to their weak risk resistance and high dependence on cash flow, SMEs may be unable to sustain themselves in extreme cases if cash flow breaks. Merchants struggling to survive are unable to improve product quality and services, and some may cut corners to stay afloat, ultimately harming consumer interests. For the e-commerce industry, which has just emerged from a period of extreme involution, the shadow of the "lowest price on the entire network" battle has not fully dissipated, and SMEs on the supply side also need a breather. The first step to improving the business environment for SMEs is to ensure they have stable operating cash flow. The recent symposium on private enterprises emphasized the need to focus on solving the problem of arrears owed to private enterprises. Recently, to promote timely payment of amounts owed to SMEs by government agencies, public institutions, and large enterprises, protect the legitimate rights and interests of SMEs, and optimize the business environment, the "Regulations on Ensuring Payment of Amounts Owed to Small and Medium-Sized Enterprises" was revised and will take effect on June 1, 2025. With policy support in place, the next key step is to encourage large enterprises to cede some benefits to SMEs and foster a win-win cooperative atmosphere. Shorter payment terms can make the cash flow of physical merchants more stable and inventory turnover faster, playing an invaluable role in creating business growth and reducing operating costs for merchants. Various non-self-operated e-commerce platforms have also been trying to help merchants shorten payment terms in recent years. Previously, Taobao and Tmall, together with MYbank, launched a "0 payment term" service during the 618 shopping festival, and Douyin E-commerce has also introduced merchant support policies such as "flexible payment terms." A new industry consensus is forming: competing on quality, efficiency, and speed should not be limited to the consumer side; for SMEs on the supply side, more efficient cooperation models and shorter payment cycles should also be explored to benefit multiple parties and achieve a virtuous cycle. SMEs are both the "engine" of economic growth and the "ballast stone" of social stability, solidifying the foundation for long-term economic improvement. Do not let payment terms become a noose that strangles innovation. Only when SMEs "remain evergreen" can there be hope for upward breakthroughs.