The Chinese government has introduced significant revisions to the Regulations on Guaranteeing Payment of Funds to Small and Medium-Sized Enterprises (SMEs), aimed at addressing long-standing challenges related to delayed payments. Effective June 1, 2025, these changes reflect China’s commitment to fostering a fairer business environment, improving cash flow for SMEs, and enhancing financial discipline among large enterprises and government entities.
Addressing Late Payments: A Persistent Issue
Late payments have been a major challenge for SMEs in China, affecting financial stability and business operations. Many small businesses struggle with cash flow due to delayed payments from larger enterprises, public institutions, and local governments. The new regulations seek to eliminate these inefficiencies by clearly defining payment responsibilities, setting stricter timelines, and imposing legal consequences for non-compliance.
Key Changes in the Revised Regulations
- Clearer Payment Deadlines
Large enterprises, government agencies, and public institutions must settle payments within 60 days from the date of goods, projects, or service delivery. Any exceptions must be contractually justified and follow industry norms. Crucially, payment terms can no longer be tied to third-party payments, preventing the common practice of passing financial burdens along the supply chain. - Stronger Oversight and Government Accountability
Local governments and regulatory bodies are now responsible for ensuring compliance. Authorities will be required to conduct regular audits, establish reporting mechanisms, and intervene where necessary. Non-compliance by public institutions could lead to restrictions on government funding and operational privileges. - Limits on Non-Cash Payments
SMEs will no longer be forced to accept alternative payment methods such as commercial bills or electronic vouchers, which are often used to delay payments. The regulations prevent large entities from using such instruments to extend payment periods, ensuring that cash transactions remain the standard. - Enhanced Legal Protections and Penalties
Businesses that violate the payment terms—especially large state-owned enterprises—will face stricter penalties. Corporate managers responsible for payment delays may be subject to legal consequences, while public institutions may see funding restrictions or limitations on investment approvals. - Establishment of a National Complaint Platform
A unified complaint mechanism will be introduced, allowing SMEs to report delayed payments directly to government authorities. Complaint-handling departments will be required to respond within 30 days, with an absolute resolution deadline of 90 days. This ensures greater transparency and accountability.
Impact on SMEs and the Business Environment
These regulatory changes mark a significant step toward improving cash flow for SMEs, reducing financial risks, and fostering a more balanced commercial environment. By ensuring timely payments, SMEs will have greater stability to invest in growth, innovation, and job creation. At the same time, larger enterprises and government institutions will be encouraged to adopt more responsible financial management practices.
As China continues to refine its business regulations, these measures reinforce the government’s broader agenda of supporting private enterprises, enhancing corporate governance, and promoting sustainable economic development.
For businesses operating in China, understanding and adapting to these regulatory changes will be crucial for maintaining strong financial operations and ensuring compliance.