China's leading battery supplier for new energy vehicles, CATL, showcases its battery swapping blocks at an exhibition. (Photo/Ju Huanzong)

Chongqing - In June 2025, 17 major Chinese automakers, including industry leaders BYD and Dongfeng, pledged to shorten payment terms to suppliers to 60 days. By the end of Q3 2025, payment efficiency had improved among top carmakers, but many small and mid-sized suppliers continued to struggle with financial pressure.

Payment terms refer to the time gap between when automakers receive goods from suppliers and when payment is actually made. Essentially, this represents the automakers' use of supplier funds. On June 1, Chinese regulations on ensuring payment to small and medium-sized enterprises came into effect, which mandates large companies to pay within 60 days after procurement. Starting from June 10, automakers like BYD began committing to a "60-day payment term" across the industry.

This mandate is a response to the ongoing "price war" in China’s auto sector, which has been prevalent since 2023. According to Cui Dongshu, Secretary General of the China Passenger Car Association, the automotive industry’s profit margin from January to September 2025 stood at 4.5%, which is lower than the average 6% profit margin of downstream industries, indicating that the automotive sector remains under substantial profit pressure.

To maintain market share amid the ongoing price competition, automakers have often extended payment terms to suppliers as a way to exchange payment terms for profits. By delaying payments, automakers secure additional capital for their price reduction strategies, but this has left upstream suppliers, particularly small and medium-sized enterprises, facing liquidity challenges.

Cui stated that for small and medium-sized suppliers, quicker payments would improve cash flow, reduce financial strain, and foster better cooperation across the supply chain. A unified payment term would also minimize friction and uncertainty, enhancing overall industry stability and competitiveness.

Since the June mandate, leading automakers have shown positive signs of fulfilling the requirement. Qiao Peng, Director of Government Affairs at Guoqi Intelligent Control (Beijing) Technology Co., Ltd., a supplier of intelligent driving solutions to automakers such as Changan and Seres, stated that the company has already observed changes in payment patterns.

Qiao told Bridging News, "Leading independent brands like Changan and BYD have honored their payment commitments." The most noticeable change is the timing of payments. In the past, most payments were concentrated in the fourth quarter, but now car firms make them in the second and third quarters, based on normal order volumes, which improves the predictability of the company’s financial budget.

This change also appears in the accounts payable turnover days data from the third-quarter financial reports of car companies. Accounts payable turnover days serve as a key metric for measuring an automaker's ability to meet payment commitments and reflect the health of upstream suppliers' cash flow.

According to reports, the average accounts payable turnover days for ten listed car companies, such as BYD, Changan, and Great Wall Motor, in Q3 2025 was 57 days, a reduction from the 142-day average in Q3 2024. However, companies like SAIC Motor and Great Wall Motor still reported turnover days exceeding 60 days, with figures of 98 days and 75 days, respectively.

The shortening of payment terms has also helped drive the automotive industry toward technological innovation and improvements in efficiency. Qiao explained that once automakers standardize payments, suppliers can focus more on software iteration and efficiency improvements, thereby lowering amortization costs and creating a positive cycle in the industry chain.

However, compared to large first-tier suppliers, small and medium-sized suppliers face more complex challenges. A representative from a supplier of automotive lighting and optical components for companies such as Seres and Geely pointed out to Bridging News that, although the 60-day payment term has been promoted, many companies have not fully implemented it.

"Many companies ship products one month but issue invoices two or three months later," the representative explained. Suppliers then receive bank acceptance bills. Although they can discount these bills at the bank, they must wait for approval, which can push the actual payment beyond 60 days. This "bill method" enables automakers to indirectly extend payment terms, thereby tying up supplier funds while reducing direct payment cycles.

If accounts payable bills are included in the statistics, the combined accounts payable and bill turnover days for 10 car companies in Q3 2025 averaged 110 days, which is about 53 days longer than the average of 57 days for pure accounts payable turnover.

Among them, seven companies, including BYD and Dongfeng Motors, saw an increase in the balance of payable bills compared to the end of the previous half-year, with an average increase of approximately 3.007 billion yuan.