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 risk.
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.
