Although the income of China’s construction machinery industry has continued to increase in recent years, it is worth noting that the accounts receivable of various companies are increasing, and corporate risks are also increasing.
Sany Heavy Industry’s accounts receivable in the first three quarters of last year was 20.7 billion yuan, accounting for half of its revenue (40.7 billion yuan) in the first three quarters. In mid-October last year, Sany Heavy Industry also lowered the ratio of its bad debt provision for accounts receivable. The ratio of bad debt provision for accounts receivable was reduced from 5% to 1% within one year. Fine-tuning is seen by the industry to increase net profit.
Also at the end of the third quarter of last year, Zoomlion’s accounts receivable and other accounts receivable totaled 20.7 billion yuan, accounting for as much as 53% of operating income; the company’s net cash flow from operating activities in the third quarter of last year It has also deteriorated, with only -410 million yuan. During the same period, XCMG’s accounts receivable also showed a significant growth trend. Its accounts receivable balance was 9.043 billion yuan, an increase of 127.83% over the beginning of the year. From January to September last year, the company’s operating cash flow was only -579 million yuan. In the same period in 2011, its operating cash flow was as high as 2.248 billion yuan.
Many industry figures told reporters from China Business News that although the market environment has not been good since the second half of 2011, companies have spared no effort in promoting products, using many methods of lending and selling goods, and a large amount of accounts. There is a risk that it cannot be recovered.
A supplier told reporters that in order to reduce the pressure on downstream capital turnover, some companies used zero down payment or even helped corporate loans to promote products. The financial reports of some companies also revealed the consequences of this situation. For example, Zoomlion has reduced the supplier’s prepayment in order to relieve the supplier’s capital turnover pressure. In the third quarter of last year, the company’s prepayment was only 1.22 billion yuan, a decrease of 10.2% from the end of the second quarter. The amount was only 8.43 billion yuan, a decrease of 20.2% compared to the end of the second quarter.
Another way to push up accounts receivable is to change the installment payment model.
In the past, some construction machinery products used a two to three-year installment payment model in the process of financial leasing. Assuming a 1 million yuan equipment, after a down payment of 200,000 yuan, the annual installment amount is at least 250,000 yuan; but after the second half of 2011, due to the tightening of domestic bank credit, some factories, industrial mines and railway construction slowed down , Making the sales of construction machinery products also stagnated. Then, as one of the sellers of construction machinery products-the financial leasing company, it will extend the loan time to 4 to 5 years. If it is a zero down payment, it means that the annual repayment amount is also about 200,000 yuan (only the principal, excluding other expenses such as interest), which is significantly lower than before. As a result, changes in the installment payment model have also made suppliers’ cash flow extremely tight, and accounts receivable have also risen accordingly.
Recently, even more companies have adopted the “sale and leaseback” approach, which has intensified the increase in accounts receivable.
The “sale and leaseback” model can be divided into two categories. The first is the “sale and leaseback” of new equipment. It was originally intended to respond to customers who have requirements on invoices and start order.
The process is that supplier A sells the product to customer B, and then A buys the product back from B, and then leases it to B. The advantage of this method is that B can obtain an invoice in advance to facilitate the start of work. If only through the “financial lease” model, B will not be able to get the product invoices after the financial lease ends, and some projects cannot be started. However, the disadvantage of this approach is that compared with direct sales, not only will it increase the accounts receivable, but B may take the invoice to a bank and other financial institutions for secondary mortgage, which is “one thing, multiple finances”. Suppose company B Sluggish operations and repayment problems have caused the collection of this batch of equipment to be in vain.
Another type of “sale and leaseback” is the leaseback of second-hand products, which also increases the company’s accounts receivable. To put it simply, company A has already sold the product to B, but B due to poor management and short-term financial pressure, after a period of time, it sells the old product back to A and leases it to A again.
“Some well-qualified customers have to pay wages at the end of the year, and the cash flow cannot be guaranteed. We always have to find a way to help them tide over the difficulties. Our sale and leaseback business is only for A-level customers with good credit and good repayment status.” The sales manager of a well-known construction machinery company revealed to reporters.
Sha Quan, CEO of Modern Leasing, said in an interview: “The manufacturer’s leaseback business is purely for the purpose of lending. If the funds are allocated to enterprises with insufficient credit (in fact, individuals), then problems will arise sooner or later. Some companies do after-sales. Rent, but it is very likely that there is no real sales link, and no invoice is issued. There are endless troubles.”
“There are special industry associations in the United States to collect statistics on customers’ credit. Financial leasing companies can pay to check customer’s credit information, but there is no such institution in China. In addition, some third-party financial leasing companies are reviewing customers’ credit and assets. The authenticity review is very imperfect.” A sales manager of Xugong Machinery told reporters.
At present, various companies have taken certain measures to control the expansion of accounts receivable. For example, Hong Xiaoming, chief financial officer of Zoomlion, once said that the management systems and risk warning systems for funds, foreign exchange, receivables, inventories, fixed assets and information systems have been improved, and Sany Heavy Industry and Xugong Machinery have also adopted The use of non-recourse factoring and other means to reduce bad debts. However, Sha Quan also said that the company itself must realize that the essence of the company is still a production and seller rather than a credit company, so as to further prevent the occurrence of bad debts and bad debts.
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