China's fast-growing domestic economy presents tremendous opportunities for western companies, but also big risks.
To capture market share, many multinationals have offered credit
terms of 60 to 180 days to customers, well beyond normal practice in
other markets. This raises significant issues linked to risk
management. Moreover, many multinationals adopt a distributor sales
channel in China to grow their sales and presence. But being so large,
you can easily end up with up to 1,000 distributors.
As the demand for the foreign company's products grows, the
distributors' requirements for working capital will increase. This
creates a bottleneck if multinationals are unwilling to go beyond their
normal credit terms for the distributors, resulting in potentially
foregoing extra sales.
In this article
from gtnews.com, Standard Chartered Bank's David Leung looks at what
multinationals can do to control their accounts receivables payment
The article looks at the most common method of managing this risk,
the so-called Bank-accepted Draft (BAD) , and also newer alternatives
such as the emergence of a domestic credit insurance, which is now
offered in China by insurance firms such as Ping An, AIG and Allianz.