You pretend to record sales & I’ll pretend to pay you


A good sign of how fiscally sound the micro economy is comes down to its ability to ‘collect’ receivables. Chinese construction machinery companies currently in a world of hurt, note that some of these companies now have accounts receivables equivalent to 1.5 years of current sales. As the task of achieving sales gets tougher companies sometimes extend generous repayment terms. That might be pushing collection from 60 days to 90 or 120 days but not 500. Cash is not moving. It is a case of I’ll pretend to pay you if you pretend to record the sales. Some companies record sales as soon as it lands on the dock. Sadly for Chinese construction machinery firms that does not look remotely positive and one wonders how much cash for this equipment shipped ever gets collected…sales for these Chinese machinery companies is down around 42% since the peak in 2011.

Interesting to note that the Western and Japanese construction machinery makers are closing the accounts receivable days but that may also be a reflection of restricting to what they deem are reliable end customers. Of course mining and construction capex has fallen off a cliff. If we look at Caterpillar, AGCO & Deere’s revenues since 2012, they have slid 40% so that shows how little trust is in the system. Komatsu’s sales are down 13% over the same period but their riskier customer profile shows that accts receivable/revenue have started to rise again. I guess it depends on how desperate corporates are to drive sales or protect profits…

So believe your lying eyes if you want to

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