Construction Machinery Enterprises’Credit Sales And Financial Risks

Construction machinery industry is the foundation and pillar industry in our country. With the increasing investment in fixed assets and the improvement of the economic environment, construction machinery industry faced rapid expansion in scales and doubled sales revenue. The operation revenue of construction machinery enterprises is mainly come from credit sales consists of finance lease and mortgage sales. With the introduction of a third party in trading and a new assurance relationship, buyers gain the using rights at a lower down payment proportion and sellers achieve the revenue at the beginning of the deal through a third party.In the form of theory combining with case study, this paper analyzes the business process, trading relations, financial statement of credit sales, also it research the revenue recognition and financial risk problem of credit sales combining with relevant accounting standards. Studies revealed that all the risks and rewards associated with credit sales at the beginning of the deal are not transferred from buyers to consumers or intermediary agency, sales revenue is not all transferred into actual cash flow for the enterprise; due to current laws and regulations, the disclosure of credit sales scale in financial statement can’t reflect enterprise’s true revenue quality and contingent liability risk caused by huge cash deposit.Based on the financial analysis of a leading engineering machinery enterprise SANY, studies showed that the share of credit sales and the scale of the enterprise receivables asset were in same change trend. When credit sales ratio reached a certain degree, all receivables exceeded annual revenue, which may have adverse impact on cash flow. Because there was no adequate provision for bad debt, bad debt that came true may cause a loss for the enterprise in the future; because sellers had taken the ultimate liability of buyback in the credit sales chain, contingent liabilities risks may lead to a negative change of the enterprise’s capital structure in the future.The popularity of credit sales is the natural trend of industry development. Only moderate using of credit sales and searching for a balance between the short-term interests and long-term development can an enterprise weakens financial risk to the greatest extent.