Amongst all indexes of textile machinery half-year running analysis, one group of data is conspicuous enough to draw experts’ attention. Up until the end of May, all textile machinery debt receivables reached up to 7.256 billion RMB, down by 11.38%. Sell on credit accounts for more than 33% of total industry sales revenue which is down by 5.56%. As concluded throughout this data, debt receivables situation is improving which indicated that textile machinery market is showing signs of recovery which to a certain extent can be seen as inspiring news. Nonetheless, facts hiding behind these figuras are that market shrinking is the origin of declined receivables which indicated that debt receivable management is becoming a tricky problem for textile machinery vendors.

Debt receivables underplays capital using efficiency
Theoretically speaking, debt receivable is very normal and textile machinery industry is not alone facing how to manage this. Even in the western developed countries where market order being far more sound and systematic than that of in China, sell on credit still widely existed which explains the prevalence of debt receivables. Not unilaterally should we say this is an unreasonable phenomenon, but receivables amounting in the long run will definitely say something about the running of a company. At least some sort of deviation from the right or appropriate sale model existed. One thing for sure is that no boss is going to ignore the long-term debt receivables.

The social credit system remains unsound and it is indeed good news that debt receivables declines. But it impairs the healthy development as well as the profit-gaining capability of the industry if debt receivables keeps accumulating.

Specifically, debt receivables for textile machinery industry also underplays company capital using efficiency and brings down the overall benefit. There are many elements influencing the profit margin of a company, raw material price, internal production management, for example. In contrast with all these elements, debt receivables influence the benefit in a way of bad debt accrual way. According to the regulations of Company Accounting Principles, companies are supposed to systematically checkout all debt receivables year-end and reasonably prepare the accrual of bad debts. Should companies indeed prepare the accrual of bad debts, management cost would be accordingly increased and consequently affect the overall benefit of a company.

Debt receivables highlights market competition
Although many companies realize that undertaking sell on credit sales mode would engender debt receivables and inappropriate management would lethally affect the regular running, many companies are still taking this mode, especially these companies with less competitive advantages in company scale as well as products. It seems as an inevitable way to increase or generate sales under economic recession.

As buyer market prevails currently and being less competitive in company scale, technology and manufacturing cost, many small textile machinery vendors are losing ground to compete with their rivals, therefore reluctantly to sell on credit so as to secure the market occupancy. In the meantime, many downstream companies are also lingering on in a steadily worsening situation and consequently delays in arrears. 　　

Bypass sell on credit
Since debt receivables are inevitable for some companies, how to minimize its proportion in the total sales revenue becomes what companies are concerned about.

Mr. Lujianguo, vice president of Changshu Feilong Nonwoven Co., ltd. insists that textile machinery companies should subdivide contracts covering all specific details. All key elements must have to be encapsulated in the sales contract which is in complete compliance with all legal regulations, especially the payment term part. Types of payment, checkout period and overdue payment as well as contract violation responsibilities must be explicitly written in the sales contract. In the mean time, it is recommended to photocopy the sales contract and each relative department keeps a copy. For example, it is good for the administrating department, financial department to have contract record so as to keep close watch on the order’s following and administrating. Secondarily, after-sale service quality must be improved. Buyer’s market means products sale is tantamount to service sell. After the goods having been sold out, it is strongly recommended that companies keeping close eyes on both the products and customers to ensure a smooth sales procedure which in another part will put appropriate payment pressure on customers.

To reduce account payable, many companies undertook cash-discount measures which encourage customers to make the payment within a certain period to ensure a smooth capital turnover. Should the downstream customers finish the payment within 30 days, textile machinery vendors will provide 98% discount, and 60 days for 1% discount, 90 days for no discount at all.

Excluded from all these measures, experts strongly suggest that textile machinery companies should invest more on technology innovation and make specific sales strategy following specific market demand which is the only way to be more active in future market and helps to reduce the proportion account payable has taken in the sales revenue.

Source: China Textile Leader