At a policy briefing held on September 14th, officials from the State-owned Assets Supervision and Administration Commission made a firm commitment: central enterprises must take the lead in paying their suppliers on time. The focus is now on making cash payments to small and medium-sized enterprises a strict requirement, with a new ban on issuing payment instruments with terms exceeding six months. When I first saw this news, my immediate thought was that this is a measure that should have been implemented long ago.

First, let's break down what "delayed payment" means in accounting terms. I've explained many times that when you sell goods and the money is still in someone else's pocket, it's called accounts receivable. Conversely, when you buy goods and the money is still in your own hands, it's accounts payable. When an SME delivers goods or completes work, the money often sits idle with a larger company. This appears as accounts receivable on the SME's balance sheet and as accounts payable on the large company's books. These are two sides of the same coin; every extra day a large company holds onto its payables is another day an SME's receivables age.

As receivables age, they become "older," and as the aging increases, provisions for bad debts must be made. Ultimately, the profit on the income statement is gradually eroded by these delays. Profit is like water, but cash flow is the blood. This is how the lifeblood of an SME gets drained, drop by drop.

The essence of large companies delaying payments is essentially running their business with someone else's money. I've often said that a truly powerful company uses others' money to fund its own operations. However, this principle has a precondition: it should be the result of market dynamics, such as when a product is in high demand and both upstream and downstream partners are eager to provide financing. But when a company relies on its sheer size and market dominance to treat its suppliers like an "interest-free bank," that's not smart business; that's exploitation.

Some large corporations employ even more elaborate tactics. When the payment term arrives, they don't pay cash. Instead, they offer a "note"—a commercial acceptance bill that might have a term of six months or even a year. In accounting terms, this transaction involves debiting accounts payable and crediting notes payable. While the liability remains, in reality, the money that should have been paid is transformed into a "piece of paper that promises payment in six months." The SME holding this note can either wait it out for the full term or discount it, which means paying interest to get cash sooner. So, the large company benefits from delaying payment, and the SME ends up footing the interest bill. This is why the new regulations banning new instruments with terms over six months and strictly managing non-cash payment tools hit the nail on the head.

Being owed money is already painful, but being given an IOU that takes an unreasonably long time to clear is simply unacceptable. Consider the story of a small business owner, Mr. Wang, who delivered his goods three months ago, issued the invoice, and got the acceptance sheet signed, yet every inquiry is met with "it's in the process." After six months of "processing," he finds himself at his wit's end. My response to him is that when you sell goods but can't collect the money, you're not just a delivery person; you're also a tax remitter. Value-added tax and income tax are calculated based on recognized revenue, not on cash collected. You pay taxes on income you haven't even received, which is the harshest impact of payment delays on small businesses.

Another finance manager, Xiao Li, once told me their company's income statement shows profits year after year while their bank account is perpetually empty. My observation is simple: if you have profit but no cash, you can't survive. If you have no profit but you do have cash, you can still keep going. A single coin can defeat a hero, and a business is no different from a person in this regard.

A commenter noted that state-owned enterprises paying first would be of great help to smaller companies. I agree. Central enterprises act as the master valve in the supply chain. The policy framework calls for promoting this effect along the business chain to clear the entire circuit of debts. This is a very professional approach: when a central enterprise pays its first-tier supplier, that supplier can then pay the second-tier, and so on down the line. Money only functions as money when it's in circulation.

What does the 60-day payment term really signify? The new directive encourages large enterprises to limit the maximum payment period to SMEs to 60 days, with leading companies making a firm commitment to this timeframe. In practical terms, this means the accounts receivable turnover period for an SME shouldn't exceed 60 days. Let me illustrate with a calculation: a company with an annual revenue of 10 million yuan, under a 180-day payment term, would have nearly 5 million yuan perpetually tied up in other people's pockets. Reducing that term to 60 days brings the figure down to roughly 1.7 million yuan. That difference of over 3 million yuan is what keeps an SME alive—it's the money for wages, rent, and raw materials, and it's the buffer that prevents them from having to resort to high-interest bridge loans.

I have to be realistic, though: the policy is sound, but its effectiveness hinges on execution. Payment delays have been addressed multiple times over the years, often resulting in a cycle of "clearing while generating new debt" and relapsing once the spotlight moves on. This latest document specifically mentions joint interviews with major companies that deliberately stretch payment terms and enhancing the requirements for payment disclosure. Disclosure is a powerful tool; sunlight is the best disinfectant. Exposing which companies have the longest payment terms and the most outstanding notes is far more effective than holding a hundred meetings.

Finally, let me share some final thoughts. As long as accounts receivable cannot be collected, the recorded revenue is essentially notional, and so is the profit. This applies to the broader economy as well. If the income of small and medium-sized enterprises exists merely as numbers on the balance sheets of large corporations, that income is phantom. Employment will shrink, and economic vitality will wane. Only when real money changes hands is a transaction truly complete, and only then does the economic machine actually turn. When the central enterprises take the lead and their "payments" hit the ground, the "receipts" for millions of small businesses can be secured. Making money flow is more important than anything else.