On September 15, the China Association of Automobile Manufacturers (CAAM) released the “Supplier Payment Terms Standardization Initiative for Automobile Manufacturers”. The initiative emphasizes the implementation of the “Regulations on the Payment of Small and Medium-sized Enterprise (SME) Debts,” aiming to support leading automakers in fulfilling their supplier payment commitments and to create a collaborative, win-win ecosystem for the automotive industry. This is intended to promote high-quality development within the industry. The initiative primarily addresses four key areas: order confirmation, delivery and acceptance, payment and settlement, and contract terms.
Key Points of the Initiative:
Order Confirmation
The initiative calls for both suppliers and automakers to confirm purchase orders and establish execution requirements via delivery notices.
Delivery and Acceptance
The initiative outlines clear delivery and acceptance requirements for both suppliers and automakers. It specifically suggests that automakers should complete the acceptance process within three working days after receiving goods.
Payment and Settlement
It proposes guidelines on payment terms, including the start of the payment period, payment methods, and how to handle situations when prices are not agreed upon. A key recommendation is that automakers adopt cash or bank acceptance bills for payments to SMEs.
Contract Duration
The initiative encourages automakers and suppliers to establish long-term, stable cooperative relationships, with contracts lasting at least one year, helping stabilize suppliers’ expectations.
Industry Response:
CAAM stated that this initiative has taken into full consideration the operational realities of automakers and has undergone broad consultations. The initiative is now ready for implementation, and CAAM urges automakers to integrate the Supplier Payment Terms Standardization Initiative into their contracts and strictly adhere to their payment commitments to support industry ecosystem development.
Several automakers have already responded positively to this initiative. Dongfeng Motor Group expressed its commitment to implement CAAM’s initiative and further strengthen its role as a leader in the supply chain. It aims to enhance industrial innovation and strengthen the supply chain system to drive high-quality industry development. SAIC Group also responded, stating that in June, it officially announced that it would standardize supplier payment terms to 60 days and would no longer use commercial acceptance bills or any other settlement methods that increase the financial burden on suppliers. Moving forward, SAIC Group will continue to implement the “Regulations on the Payment of Small and Medium-sized Enterprise Debts”.
Subsequently, several other automakers including Li Auto, BYD, Xiaomi Auto, Chery Group, Seres, NIO, Leap Motor, Changan Automobile, GAC Group, Xpeng Motors, Great Wall Motors, and others have also responded to the initiative.
Related Government Regulations:
On October 18, 2024, the 43rd executive meeting of the State Council passed a revision to the “Regulations on the Payment of Small and Medium-sized Enterprise Debts”. The revised regulations, which came into effect on June 1, 2024, require large enterprises to pay for goods, projects, and services from SMEs within 60 days of delivery, unless otherwise specified in the contract. The payment period should be reasonably agreed upon based on industry standards and transaction habits, and payment cannot be conditioned upon the receipt of third-party payments or paid according to third-party payment schedules.
Industry Adoption:
Since the release of this regulation, more than 15 automakers have committed to the “60-day payment term promise”. These automakers include China FAW, Dongfeng Motor, GAC Group, Seres Group, Geely Automobile, Changan Automobile, BYD, Chery Group, Great Wall Motors, JAC Motors, BAIC Group, SAIC Group, Xpeng Motors, Xiaomi Auto, Leap Motor, Li Auto, and NIO. Notably, many automakers have taken active steps to implement this payment commitment.
Industry Observations:
Industry professionals have noted that the “Supplier Payment Terms Standardization Initiative” will help protect suppliers’ legitimate rights and foster the healthy development of the automotive industry. However, implementing the 60-day payment term may pose challenges for some automakers. For those with sufficient capital flow, this may not be a major issue, but for companies facing financial strain, adjusting cash flow to meet this commitment will be a significant challenge.
