“Under Modi, India’s got a better chance of getting closer to its potential than ever since I dreamt up BRIC,” explained Baron Jim O’Neill, current Commercial Secretary for UK’s Treasury & ex-Goldman Sachs economist, to Bloomberg Business.

Prime Minister Narendra Modi’s flagship projects and reforms have led to a dramatic rise in global investor confidence, as corroborated by Moody’s improvement of India’s rating from stable to positive. This, in turn, has inspired many to prophesize upcoming economic showdowns between the Dragon and the Tiger, with O’Neill going on to suggest that India may be number 3 after China and the U.S by 2030 from its current 7th place in GDP value.

However, plans and stratagems aside, the promised “double-digit” economic growth for India requires the addressal of the various problems currently plaguing the smaller to medium-sized enterprises (SMEs) – the backbone of most economies – in the nation. Among them is the fact that 79 percent of Indian SMEs believe that one crucial business challenge arises from the dearth of available credit instruments which, in turn, affects the management of cash flow – this challenge is late payment problems.

The legislative response against, and resolution of, late payment problems in each economic powerhouse becomes a significant indicator of future trends. Since we’ve already discussed the various aspects of late payment policies, problems, and mitigative best practices in India earlier on our blog – we’ll dedicate this article to the payment practices and attitudes of China and the United States in order to provide a comparison with the situation in this nation.

We chose these two countries because the United States is considered a valuable market for Indian businesses, and China is regarded as an economic rival, as well as a valuable purchaser and supplier of goods and services.

Late payment policies and practices in China

Legal late payment remedies

According to this interpretation provided by the Chinese Supreme Court in 2014, a seller is entitled to a general interest as well as a penalty interest in case of late payment. The general interest, however, depends upon the existence of a stipulated interest specified in the contract between the buyer and seller, or the recognition of the interest stipulation by a court of law in case of litigation – if these requirements are not met, the seller is not entitled to collect the general interest.

The penalty interest is calculated at a rate of 0.0175 percent of the outstanding principal amount per day, and the accrual starts from the first day following the payment due date or the effective date of a court verdict – in case of litigation – if the verdict does not provide for such due date.

Payment practices in China

In China’s Atradius Payment Practices Barometer report (November 2014), 84.5 percent of the respondents to which were micro, small, or medium-sized enterprises, their Days Sales Outstanding on average clocked in at 52 days, as compared to India’s count of 65 days in 2014.

Against India’s 21.2 percent respondents, only 11.9 percent of businesses reported “collecting outstanding invoices” as a challenge to profitability. 34.3 percent of Chinese businesses encounter unpaid invoices past the due date, as compared to 40.4 percent of Indian businesses. Moreover, 13.2 percent of Chinese debts remain outstanding past 90 days, as compared to 21.6 percent of Indian businesses according to this Atradius report. 2.5 percent of Chinese debts ultimately remain unrecoverable, as compared to 2.9 percent of Indian B2B invoices.

Late payment practices in US

Given the wide plethora of state and federal laws which govern companies in US, it becomes difficult to provide a unified set of legal remedies and policy benchmarks. However, even if the defaulting party is a federal agency, interest accrued within a 30-day period of non-payment from the agreed-upon due-date is added to the principal amount, and further interest is then calculated upon the updated principal.

According to this article in the New York Times, regardless of available legal protections, several large businesses have taken to nudging their suppliers into contracts with standard payment cycles of 90-120 days in a bid to “manage our businesses effectively through better cash flow management”, as voiced by a Kellogg spokeswoman.

Lessons from global payment practices: the verdict