(Yicai) June 12 -- Seventeen major Chinese automakers have now pledged to shorten the time it takes them to pay suppliers to within 60 days, but some may end up with tight or negative cash flows as a result, according to industry insiders.

Carmakers such as BYD, Geely Automobile Holdings, and Great Wall Motors, which have large accounts payable, long payment periods, and a heavy reliance on supply-chain financing, will likely weather the change, but the shift for those already facing tight cash flows and other financial difficulties could pose severe liquidity challenges, said Li Yanwei, an expert at the China Automobile Dealers Association.

The commitment by carmakers to make timely payments comes after updated Chinese regulations governing payments to small and medium-sized enterprises took effect on June 1. The new rules require large businesses to pay for goods, projects, and services procured from SMEs within 60 days from the date of delivery.

The average payment period of 12 of the 17 carmakers making the commitment is about 170 days, with BAIC BluePark New Energy Technology the longest at 248 days, followed by Xpeng Motors at 233 days and Changan Automobile at 200 days. GAC Group had the shortest payment cycle of 108 days, while BYD and Geely had relatively shorter times of about 127 days.

In terms of accounts payable, the 12 automakers had payment obligations to suppliers of more than CNY1.1 trillion (USD153 billion). BYD, SAIC Motor, and Geely topped the list with outstanding debts to suppliers of CNY244 billion (USD33.9 billion), CNY241.1 billion (USD33.5 billion), and CNY182.4 billion (USD25.4 billion), respectively.

Accounts payable equal around 40 percent of revenues at the 12 companies on average, with only GAC below 30 percent. The ratios for Chery Automobile, Changan Auto, Seres Group, Nio, and BAIC BluePark exceed 50 percent.

Delaying payments to suppliers allows automakers to improve cash flow and reduce their reliance on external financing, effectively giving them access to interest-free or low-cost funds, industry insiders noted, adding that this practice shifts the financial strain onto suppliers.

Car companies have a big thirst for capital during periods of expansion, especially in recent years as the industry transforms. Many have cranked up investment in the new energy field, but most have yet to see any corresponding returns, which has to some extent contributed to higher debt ratios across the industry.

China’s auto industry had an average debt-to-asset ratio of more than 66 percent last year, ahead of most other manufacturing sectors, according to figures from Wind Information. For Nio and Seres, the ratio exceeded 87 percent.

Editor: Futura Costaglione