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Radical revenue recognition: the risk of bad debt of construction machinery is imminent

radical revenue recognition: the risk of bad debt of construction machinery is imminent

China Construction Machinery Information

Guide: I learned that in recent years, the construction machinery industry has generally adopted the sales mode of installment payment and mortgage, and the sales revenue is generally recognized at one time in the early stage of equipment sales. If the customer's supply is cut off, the accounts receivable cannot be recovered for a long time. Mr. Chen is an excavator user in Fujian. He was born around 2009

it is understood that in recent years, the construction machinery industry has generally adopted the sales mode of installment payment and mortgage, and the sales revenue is generally recognized at one time at the initial stage of equipment sales. If the customer "cuts off supply", the accounts receivable cannot be recovered for a long time. Mr. Chen is an excavator user in Fujian. He bought two Shanhe intelligent 50 small excavators from local dealers in the form of installment payment around 2009. Because he believed that the products had quality problems and could not be actively handled by the manufacturer or dealer, he cut off the repayment according to the price. "The contract stipulates that if I combine our resources and proprietary technology to make overdue repayment, the dealer can tow the machine. But if I didn't need to make up the balance, I would have let them tow it back." He is symmetrical

Mr. Chen has been sued by the dealer to the local court and asked him to pay off the balance as soon as possible. He said that he was "very helpless". It is understood that many consumers of similar products in Hunan, Guangxi, Fujian and other countries have similar reactions

it is understood that in recent years, the construction machinery industry has generally adopted the sales mode of installment payment and mortgage, and the sales revenue is generally recognized at one time at the initial stage of equipment sales. If the customer "cuts off supply" and the accounts receivable cannot be recovered for a long time, how should the financial statements of relevant enterprises be reflected? Will this cause systematic risks to the enterprise

real estate regulation and infrastructure cooling have made "towing" a normal business for many construction machinery enterprises or dealers recently. In addition to the customers' active "supply interruption" caused by quality and other problems, many customers are unable to repay because the machines are idle due to lack of quantities, and others are in arrears with the project payment, resulting in difficulties in repayment: these customers expect the market to improve hopelessly in the short term, refuse to continue to repay, and even take the initiative to return the machines to the dealers

the survey found that some enterprises have even set up special institutions to deal with the towed machines

it is also worth mentioning that Shi pointed out that under the credit sales mode, once there is a problem with downstream payment collection, there will be a risk of "repatriation" of the recognized income of relevant enterprises

learned that the common practice in the machinery industry is that for the goods sold by mortgage, the enterprise recognizes the income when it receives the customer's down payment and handles the bank mortgage procedures; As for installment payment, the accounting standards for business enterprises stipulates that revenue is recognized at one time when the sales meet the conditions

the risks of various sales methods vary greatly. According to Li Zhengdong, an analyst of Shanxi securities machinery industry, for manufacturers, in addition to full sale, the risk of financial leasing is the smallest, followed by mortgage, and finally installment payment. However, if there is a mortgage with repurchase obligation, the risk is not small

"if the customer defaults, the company will pay the remaining principal and overdue bank interest on behalf of the customer." Or "if the dealer or customer fails to repay the principal and interest of the bank loan on time and in full for three consecutive months within the loan term, or fails to repay the principal and interest in full at the final maturity of the loan, and fails to complete the mortgage procedures and deliver them to the bank within 90 days of the loan, the company shall undertake the repurchase obligation." It is a more common commitment of construction machinery manufacturers to mortgage when selling

"if there is a repurchase obligation, it should not be recognized as revenue. If it is recognized, it means that the sales are overestimated and the inventory is underestimated." Luguihua, an accounting professor at the Central University of Finance and economics, said. Because according to accounting rules, the primary point of recognizing revenue is to require that the main risks and rewards of commodity ownership be transferred to the buyer

in addition to mortgage, other forms of financial service cooperation also hide risks. For example, in the financial service cooperation agreement signed by Shantui and the bank, the bank granted Shantui a certain comprehensive credit line for dealers to issue bank acceptance bills of Jinan assay friction coefficient tester. Professor luguihua said, "under this arrangement, the financial pressure of dealers seems to be transferred to Shantui shares, because the credit line for dealers to open bank acceptance bills is provided by Shantui shares."

the aggressive revenue recognition stems to some extent from the radical sales mode of the construction machinery industry, the most obvious of which is the low down payment promotion. "The down payment ratio of bank mortgage should be 20%." The dealer staff of a construction machinery enterprise told, "the actual situation is that the customer's down payment ratio can be specifically discussed with the marketing staff, and there is a certain room for reduction. Sometimes' zero down payment 'can drive the machine away."