Mainland companies experienced a higher level of overdue payments in the domestic market in the final quarter of last year, and consider state-owned firms as more susceptible to defaults as the government withdraws financial support, according to a survey by credit insurer Coface.
The survey, which polled 412 mainland firms between October and December last year, found 19 per cent saw overdue payments of between 0.5 per cent and 2 per cent of their sales for more than 12 months, up from 13 per cent a year ago.
'These are bad debts ... but many companies are reluctant to qualify them as bad debts,' said Xavier Farcot, the deputy regional managing director of Coface Greater China.
He said bad debt levels at up to 2 per cent of sales would hit low-end companies in particular as the debts could significantly drag down their margins. Coface expected the proportion of bad debts to sales to be higher now.
'This is a terrible trend,' Mr Farcot said. 'It appears that local companies are extending their payment terms to the limits to sustain their client portfolios.
'Financial difficulties remain the major reasons for non-payments.'