The General Office of the State Council has issued a directive to tackle the persistent issue of delayed payments to small and medium-sized enterprises (SMEs). The new policy requires industry leaders to voluntarily adopt a "60-day cash payment commitment," aiming to ease financial strain and enhance economic circulation across the country.

The directive, addressed to provincial governments and all State Council departments, clarifies that sector-specific authorities must establish transparent payment rules. These rules will define key elements such as the starting point for payment terms, payment methods, inspection and acceptance standards for goods and services, and a maximum payment period of 60 days for large firms dealing with SMEs. Contract templates are to be standardized, and cash payment is mandated unless otherwise specified in contracts, prohibiting the use of commercial drafts or electronic vouchers as substitutes without agreement.

Where to begin implementation

Industry authorities are urged to encourage large enterprises, especially market leaders, to publicly commit to paying SMEs in cash within 60 days of delivery. These companies are also required to adhere strictly to accounting standards, correcting practices like avoiding formal contracts or invoices. Industry associations will be guided to enforce self-regulation on timely payments, ensuring that these commitments are more than just rhetoric.

Oversight of corporate payment behavior

To ensure compliance, a monitoring mechanism will be established, focusing on large firms with significant accounts payable but ample cash reserves. Joint talks and corrective actions will be initiated by regulators and market watchdogs for companies suspected of intentionally extending payment periods. Non-compliant firms, after failing to rectify issues, will face joint penalties and public listing on the "Credit China" platform as seriously delinquent entities.

Authorities will intensify anti-unfair competition enforcement, investigating complaints about large companies that manipulate payment timelines or use vouchers to stretch deadlines. Typical violations will be publicly exposed to serve as deterrents. Listed companies with substantial payables must disclose payment methods, average settlement times, and usage of commercial drafts and electronic vouchers, encouraging a gradual shift towards shorter terms and higher cash payment ratios.

Role of state-owned giants

State-owned enterprises (SOEs), particularly central enterprises, are expected to lead by example. They must define all key payment terms in contracts, use cash exclusively for SME transactions, and ensure subcontractors in their projects are paid promptly with equal cash proportions. Their payment activities will be monitored through treasury systems, with violations leading to strict accountability and follow-up actions.

Managing non-cash payment instruments

A significant reform targets electronic vouchers, slashing their maximum validity period to six months. Platforms issuing such vouchers are prohibited from creating new ones beyond this limit, and financial institutions cannot finance longer-term vouchers. Oversight will be tightened to curb excessive use of drafts and vouchers, with a ban on forcing SMEs to seek financing from associated factoring companies of larger firms.

Electronic voucher service platforms must comply with filing and fee disclosure rules, feeding comprehensive operational data to the Shanghai Commercial Paper Exchange. This body will monitor issuance and defaults across institutions, with overdue payments leading to public disclosure and suspension of new voucher services for the offending companies.

Improving cash flow transmission

For government procurement projects, full cash payment is now compulsory, with prompt payment tracked as part of project oversight. The entire chain, from fund allocation to payment, will be monitored to ensure subcontractors and workers are paid. Existing government projects that have been completed but remain unsettled must expedite financial settlement, easing pressure on wage payments.

SMEs facing defaults can report via a national complaint platform, with authorities targeting regions and industries showing severe issues for priority supervision and deadline-based rectification. Financial support will be bolstered, offering better access to loans and bond issuance for large firms that successfully reduce their payment times and balances, facilitating cash payments down the supply chain.

Finally, the directive emphasizes coordinated efforts across all levels of government, blending guidance with enforcement to foster a healthier environment where large and small enterprises thrive together. The special task force on clearing overdue payments will oversee implementation, ensuring progress and timely reporting of significant matters to the State Council.