China Mandates Stricter Payment Rules to Protect SMEs from Large Corporate Delays

The General Office of China's State Council has issued a comprehensive directive targeting overdue payments owed to small and medium-sized enterprises (SMEs). The policy introduces strict settlement rules across industries, encouraging large enterprises to commit to paying SMEs in cash within 60 days of delivery. It imposes a six-month cap on supply-chain electronic credit vouchers, prohibits financial institutions from funding vouchers exceeding that duration, requires central state-owned enterprises to pay SMEs entirely in cash, and mandates full cash settlement for government procurement contracts.

Prolonged payment cycles and the proliferation of multi-tier electronic commercial vouchers have effectively forced smaller suppliers to act as low-cost lenders to larger corporations. By capping electronic vouchers at six months, restricting financing for extended maturities, and pushing for direct cash settlement, Beijing aims to unblock liquidity bottlenecks, prevent larger buyers from offloading financing burdens onto downstream vendors, and stabilize operating conditions across private industrial supply chains.

China's central government has introduced a targeted set of measures to curb chronic payment delays suffered by small and medium-sized enterprises (SMEs), addressing structural imbalances in supply-chain commercial credit. According to a circular issued by the General Office of the State Council and reported by Xinhua, sector authorities are instructed to integrate timely payment standards into industry regulations. The rules require clear definitions for four critical payment components: the trigger date for payment terms, settlement procedures, inspection and project completion timelines, and maximum settlement periods. Large corporations, particularly industry leaders, are urged to pledge cash settlements to SMEs within 60 days of goods or services delivery. If a commercial contract fails to specify the payment method, public agencies, public institutions, and large corporations must settle SME accounts in cash rather than using commercial acceptance bills or electronic vouchers. The directive significantly tightens oversight of supply-chain financial tools. It caps the maximum maturity of electronic credit vouchers at six months, barring voucher platforms from issuing instruments exceeding this duration. Commercial banks and commercial factoring companies are explicitly prohibited from providing financing against electronic vouchers with terms longer than six months. Furthermore, electronic voucher platforms must connect their operational data to the Shanghai Commercial Paper Exchange, enabling centralized, cross-institutional monitoring of commercial paper and digital receivables issued by large corporations. Regulatory authorities will also intensify enforcement against delayed payments. The People's Bank of China, the State Administration for Market Regulation, and relevant line ministries will conduct joint regulatory talks with large companies that deliberately prolong payment cycles, focusing especially on firms with large payables despite holding ample liquid assets. Under revised guidance for the Anti-Unfair Competition Law, authorities will penalize and publicly expose buyers that abuse dominant market positions to stretch payment terms through delayed inspections or non-cash instruments. The directive also assigns an explicit demonstration role to public-sector buyers. Central state-owned enterprises are required to pay SMEs exclusively in cash while maintaining an appropriate cash ratio for larger counterparties. In addition, government procurement projects must settle entirely in cash, and public investment project owners are instructed to prioritize cash distributions to ensure main contractors pass cash down to subcontractors.