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The Regulations on Ensuring Payments to Small and Medium-Sized Enterprises (2025 revision) were promulgated on 17 March 2025. On 30 April, the Standing Committee of the National People¡¯s Congress adopted the Private Economy Promotion Law, which introduces new measures in areas such as fair competition, investment and financing, technological innovation, and the protection of rights and interests.

Both legal instruments, particularly in payment protection for enterprises, incorporate innovative and practical provisions, including punishment for dishonesty, disclosure and regulation of payment terms, complaint handling mechanisms, and expedited mediation and litigation channels.

Safeguards

Prohibition of ¡°settlement by audit¡±. Article 67 of the promotion law and article 12 of the payment regulations both explicitly stipulate that, unless otherwise provided by law or administrative regulations, requiring the results of an audit by an auditing authority as a prerequisite for settlement is prohibited. This provision ensures the settlement process is free from unreasonable external interference and maintains its independence.

The 2025 revision also expands the scope of payers and applicability. The scope of payers has been extended from government organs, public institutions and large state-owned enterprises (SOEs) to include all state organs, public institutions and all SOEs. The scope of application has been broadened from small and medium-sized enterprises (SMEs) alone to all private economic organisations.

The 2025 revision removes the exception of ¡°otherwise agreed in the contract¡±, making it clear that, except as otherwise provided by law or administrative regulations, contracts may not stipulate ¡°settlement by audit¡± as a basis for payment. Even if such a clause is agreed, it is invalid as it contravenes laws and administrative regulations. This measure prevents state organs, public institutions and SOEs from exploiting their dominant position in contract negotiations to the detriment of private economic organisations or SOEs.

Prohibition of unreasonable refusal or payment delays. Article 67 of the promotion law and article 14 of the payment regulations strictly stipulate that payers may not refuse or delay payment on grounds such as personnel changes, internal payment procedures, or unagreed completion acceptance approvals or final account audits.

The promotion law also expands the scope of payers and applicable parties. Although the regulations do not completely prohibit payers from stipulating completion acceptance approvals or final account audit procedures in contracts, state-owned or large enterprises may still use their dominant position to set such requirements.

Nevertheless, the relevant provisions effectively prevent payers from using various internal procedures or unreasonable grounds to delay payment, ensuring the stability of enterprise payments and enabling enterprises to have a clear expectation of payment timelines, which is beneficial for cash flow planning.

Prohibition of ¡°back-to-back¡± clauses. Article 68 of the promotion law and article 9 of the 2025 revision explicitly prohibit large enterprises from making payments to small and medium-sized private economic organisations conditional on receipt of payment from a third party, that is, ¡°back-to-back¡± clauses are strictly forbidden. This provision applies only to large enterprises as payers and only to SMEs as payees.

On 27 August 2024, the Supreme People¡¯s Court issued the Official Reply on the Validity of Clauses Stipulating Third-Party Payment as a Precondition in Agreements between Large Enterprises and Small and Medium-sized Enterprises, declaring such back-to-back clauses invalid. The 2025 revision incorporates this judicial interpretation, achieving consistency between legislation and judicial practice. It provides a stronger legal basis for the recovery of accounts receivable by small and medium-sized private economic organisations.

This avoids the impact of uncertainties in transactions between large enterprises and third parties on the cash flow of SMEs. The 2025 revision also provides more specific and detailed measures for payment protection, including regular work reports, written inquiries and interviews, supervision and notification, and complaint handling to intensify efforts to clear overdue payments.

The revision also clarify the rights and obligations of all parties in complaint handling and the time limits for processing, forming a closed-loop mechanism from complaint acceptance to accountability, and effectively strengthening constraints on arrears to SMEs.

Compliance recommendations

Based on the ¡°three-stage¡± theory of contract management, the following compliance recommendations are proposed.

Contract signing stage. According to the payment regulations, when SMEs enter into contracts with state organs, public institutions or large enterprises, they should proactively declare their SME status. Otherwise, it will be difficult to invoke statutory maximum payment periods and claim liability for delayed payment.

When signing contracts, key terms such as payment time, method and conditions should be clearly defined. For construction contracts, the specific standards, procedures and deadlines for completion acceptance should be specified to avoid payment delays due to ambiguous acceptance procedures.

Contract performance stage. During the performance of the contract, enterprises should properly retain all transaction-related evidence, including but not limited to contracts, invoices, delivery notes, acceptance reports and communication records, especially delivery notes or handover lists, to facilitate the timely calculation of payment periods. Enterprises should also establish risk warning mechanisms and follow up on payment progress in a timely manner.

Contract dispute stage. If an enterprise encounters payment arrears, it may, in accordance with the promotion law and the 2025 revision, file a complaint with the complaint handling departments established by the people¡¯s governments at or above the county level and their relevant departments. If the negotiation or complaint fails, enterprises should make full use of legal remedies and, in accordance with relevant laws and regulations, initiate litigation or apply for arbitration.

The 2025 revision is expected to further address the issue of arrears owed to private enterprises. However, neither the promotion law nor the payment regulations have a retroactive effect, and conduct prior to their implementation is not subject to these provisions. Therefore, enterprises should closely monitor policies and measures issued by departments and local governments to support the private economy and address payment arrears, and actively seek policy support.

Li Weiming is a partner and Xiong Xiaorong is an associate at Blossom & Credit Law Firm