At a State Council routine policy briefing held on the 14th, multiple government departments outlined their latest efforts to address the persistent issue of delayed payments owed to small and medium-sized enterprises (SMEs). The briefing followed the recent approval and publication of a new circular by the State Council, which details specific measures to strengthen governance over this longstanding problem.

Ke Jixin, Vice Minister of Industry and Information Technology, highlighted a concerning trend where some large companies, while aggressively competing with their peers on price, resort to extending payment cycles for their SME suppliers. He criticized these businesses for leveraging their dominant market positions to employ questionable tactics that artificially lengthen the time SMEs must wait for payment. This practice effectively shifts financial strain onto smaller partners.

The newly released circular, formally titled the "Notice on Strengthening the Governance of Payment Difficulties for Small and Medium-sized Enterprises," was deliberated and approved at a State Council executive meeting. It introduces ten targeted measures across four key areas designed to tackle the issue head-on and improve the liquidity environment for SMEs.

Where to begin

The first area of focus involves refining industry-specific payment rules. The notice calls for the establishment of reasonable payment terms tailored to different sectors, along with improved regulations governing settlement and payment management. A key action is defining "four critical payment elements" for contracts. This initiative also includes launching an industry-wide initiative to encourage large enterprises to commit to timely payments, with a particular push for leading companies to be the first to embrace a "60-day cash payment commitment."

Beyond rule-setting, the plan tightens oversight of large companies' payment behavior. Authorities will conduct joint interviews and rectify instances where major firms deliberately delay payments. For companies found to be abusing their bargaining power, strict enforcement of anti-unfair competition laws will be applied. Furthermore, disclosure requirements for listed firms and other large enterprises regarding their payment practices will be improved and made more stringent, while state-owned enterprises are expected to lead by example with prompt payments.

Why focus on these specific measures?

Another critical component addresses the use of non-cash payment tools. The circular mandates stricter regulation of electronic voucher businesses, capping the maximum payment period for such vouchers at six months. Oversight of electronic voucher service platforms will also be heightened to ensure their lawful and compliant operation, preventing them from becoming a vehicle for extended payment delays.

Finally, the plan aims to strengthen the efficiency of capital transmission and financial support. This involves smoothing the flow of funds within supply chains and backing initiatives where large enterprises use financing to replace accounts payable, thereby enabling them to disburse cash to their upstream and downstream SME partners in a more timely manner.

Pei Renquan, a senior official from the State-owned Assets Supervision and Administration Commission (SASAC), noted that the commission has consistently intensified its supervisory efforts over the years. He stressed that central state-owned enterprises are being pushed to strictly standardize their payment behavior, with a clear directive to pay SMEs everything they owe and to do so quickly. To this end, a national conference for all central enterprises is scheduled for this week. The goal is to comprehensively communicate the new notice and encourage these firms to take decisive action in three key ways.

Central enterprises are expected to take the lead in honoring contracts without default or delay, maintaining a "dynamic zero" target for any breaches. They are also urged to prioritize cash payments by reducing reliance on promissory notes and other credit instruments, treating the practice of paying SMEs in cash as a firm requirement. Additionally, they are encouraged to challenge and overhaul unreasonable industry customs that disadvantage smaller suppliers. Relevant departments will formulate and refine payment settlement rules and information disclosure standards for each sector, with SASAC guiding central enterprises to comply and to be the first to clearly state the "four key elements" in their contracts. They are also expected to actively respond to and implement industry-wide timely payment initiatives, proactively manage their disclosures, and willingly submit to public oversight.