Automakers Face a New Challenge: The Complexity of Implementing a 60-Day Payment Cycle

On June 10, Dongfeng Motor announced a commitment to limit supplier payment cycles to within 60 days, aiming to enhance capital efficiency in the supply chain and promote coordinated industrial growth. The announcement prompted other automakers to follow suit, including China FAW, Changan, GAC, Geely, Chery, Leapmotor, and BYD, all of which formally declared their support for the initiative.

The heightened focus on supply chain stability aligns with recent regulatory actions. Over the past month, multiple government agencies—including the China Association of Automobile Manufacturers, the Ministry of Industry and Information Technology, and the Ministry of Commerce—have issued statements discouraging excessive price competition within the industry. The emphasis has shifted toward eliminating disorderly price wars to foster sustainable market development.

The increased attention reflects the growing financial strain on the automotive supply chain, now reaching a critical juncture that could shape the future of the sector. On June 1, the revised Regulations on Payment to Small and Medium Enterprises came into effect. According to data from the National Bureau of Statistics, as of April, the average collection period for accounts receivable among large-scale industrial enterprises was 70.3 days, an increase of 4 days year-over-year. Some automakers referenced these regulations in their statements, underscoring their commitment to shorter payment cycles.

An analysis of publicly listed Chinese automakers indicates that the average payment cycle exceeds 170 days, with some companies extending their payment terms beyond 240 days. Industry experts highlight that previous discussions centered on automaker price reductions and competitive pricing strategies without sufficient attention to who absorbs these costs. A Tier 1 supply chain executive expressed concern about the implementation of shorter payment cycles, given the significant financial burden placed on suppliers.

While these commitments mark progress, achieving a fully operational 60-day payment cycle remains a challenge. The power dynamics within the automotive supply chain often leave suppliers in a weaker negotiating position, making it difficult to advocate for improved payment terms. Cheng Peng, CEO of NavInfo, emphasized that automakers frequently substitute direct cash payments with promissory notes, leading to lengthy verification and processing periods. This results in payment cycles extending beyond six months, significantly increasing costs for supply chain enterprises. Suppliers seeking early redemption of promissory notes face additional expenses, with fees ranging from 5% to 8%, further straining cash flow.

Progress has been made as SAIC Motor became the first automaker to formally reject commercial promissory notes as a settlement method. Other firms, including BAIC Group, have issued similar statements. A traditional automotive parts executive noted that while government intervention and industry recognition are positive developments, the scale of financial obligations makes an immediate shift to a 60-day cash payment cycle unlikely. Instead, automakers may shorten promissory note cycles, but overall payment delays may still persist. Industry participants continue to advocate for realistic expectations regarding these commitments.

A Japanese joint venture automaker executive recounted facing corporate reprimands for delayed supplier payments. While some suppliers were willing to accommodate minor delays, the automaker's headquarters upheld strict financial policies, citing concerns over corporate reputation and financial planning disruptions. An examination of 12 Chinese new energy vehicle (NEV) automakers—including BYD, Great Wall Motors, Geely Auto, Seres, Li Auto, Leapmotor, XPeng Motors, NIO, BAIC BluePark, JAC Motors, GAC Group, and SAIC Motor—revealed significant disparities in payment structures compared to international automakers.

Data indicates that accounts payable and promissory note balances among Chinese automakers are substantially higher than their global counterparts, with an average payment cycle exceeding 170 days, and some extending beyond 240 days. By the end of 2024, the 12 sampled NEV firms had combined accounts payable and promissory notes totaling RMB 922.83 billion, while their total liabilities stood at RMB 2 trillion, meaning payables and notes comprised 46.22% of total debt.

Among the sampled companies, Seres had the highest proportion, with payables and promissory notes accounting for 82.96% of total liabilities. Leapmotor, Geely, Li Auto, JAC, Great Wall Motors, and BAIC BluePark also recorded ratios above 50%, whereas GAC Group had the lowest ratio at 32.07%. 

International automakers demonstrate significantly lower dependency on extended payment terms. In Q1 2025, Toyota’s payables and promissory notes totaled RMB 230.25 billion, comparable to BYD, yet they represented only 8.99% of total liabilities, well below the 46% average among Chinese automakers. Ford, General Motors, and Tesla recorded ratios of 10.95%, 12.49%, and 27.11%, respectively, all notably lower than the Chinese industry standard.

Beyond higher debt ratios, Chinese automakers exhibit longer payment cycles, creating financial challenges for suppliers. Many parts manufacturers require substantial investment, and extended payment terms force reliance on loans, leading to higher debt burdens and financing costs.

According to 2024 financial reports, the 12 sampled Chinese NEV companies had an average payment turnover cycle of 171.62 days. The longest cycles were observed in BAIC BluePark (247.74 days), XPeng Motors (232.79 days), and NIO (194.93 days). Geely (129.67 days), GAC (107.78 days), and BYD (127.23 days) recorded shorter cycles, falling below the industry average.
In contrast, Tesla has maintained a payment cycle between 58 and 75 days since 2018, optimizing to 60.36 days in 2024, significantly below Chinese industry levels.

The automotive supply chain faces increasing pressure due to persistent price reductions and extended payment cycles. The industry-wide commitment to shorter payment terms seeks to balance financial stability with supplier sustainability. As regulatory oversight increases, Chinese automakers must ensure compliance with evolving financial policies while maintaining supply chain health. The industry’s ability to successfully transition to shorter payment cycles will ultimately depend on collaborative engagement between automakers and suppliers.