Suppliers in China complain they are waiting longer for payments these days as automakers strive to conserve cash during economic hard times.

In some cases, payments are being delayed for a month or sent via a post-dated check that can only be deposited three months later. And all this is happening as cash-strapped suppliers want payments speeded up, not slowed down.

"They give us payment, in the form of a check. But we cannot cash it for two to three months," says a source at domestic supplier Zhejiang Luoshi Industrial Development Co. It makes plastic and rubber parts such as control arm bushings for automakers in China and globally.

Payment delays have become a trend since mid-2008, he said. Changes in the payment schedule are causing increased friction between suppliers and automakers, both domestic and global.

"This is always controversial. We have not received any official change, but if we do we will try to negotiate," says a source at Tier 1 supplier Georg Fischer Automotive Suzhou Co., which makes aluminum and magnesium die casting products.

In fact, Georg Fischer is planning to request that payments be speeded up to 30 days, instead of the current 60 days. Why? "Cash is king," says the source.

Standard practice to pay suppliers varies in China, suppliers say. General Motors, for example, pays suppliers in 40 days and Ford Motor Co. in 60 days.  Dongfeng Peugeot Citroen Automobile Co. pays suppliers in 90 days, while Great Wall Motor Co. and Chery Automobile Co. pay in 60.

A source at supplier Shanghai Huizhong Automotive Manufacturing Co. says, "OEMs have not officially changed payment contract terms, but there is definitely a delay in payments." Shanghai Huizhong makes chassis parts.

A source at Zhejiang Geely Automobile Group says standard practice calls for the automaker to pay suppliers between 60 and 90 days.

Will Geely officially extend its payment period?

"No," the source says. "We aren't struggling, but I can imagine that some of our JV suppliers may ask for better terms soon. Anyone with connections in Europe, U.S. are drowning in debt, low sales and lack of cash at the moment."

Analyst Duan Chengwu of Global Insight says automakers in China often delay payments for 60 to 90 days after delivery.

"If further delays arise, I would suspect the carmaker is facing financial and cash pressure," he adds.

Analyst Fangqing Huang, also of Global Insight, says a domestic Chinese automaker such as Chery or Geely will often pay cash to global Tier 1 suppliers such as Bosch or Delphi. If the automakers delay payments to global suppliers, the supplier will simply stop working with them.

However, for a small domestic supplier the scenario is completely different. Here the small supplier has limited leverage, so automakers often delay payments. Post-dated checks to these suppliers are common, he says.

General Motors pays promptly in 40 days via an "E-payment" system. "So GM has a strongly supported supplier base in China," says the Shanghai Huizhong source. 

In some cases cash is becoming so scarce that automakers are offering payment in vehicles instead. One commercial vehicle manufacturer went so far as to offer a truck in return for parts delivery, says a source at Mahle Technologies Holding Co.

Mahle makes piston systems, cylinder components, valve train systems, air management systems and liquid management systems.

For their part, manufacturers argue that suppliers should be happy for their business, even if payments are delayed. In this tough market, everybody has to give and take a little to survive, says a source at Fiat Group.

And besides, suppliers are well equipped to deal with late payments, says the Fiat official: "They just raise prices and add some interest."

Source : internet

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