Environmental companies' accounts receivable issues remain unresolved

Ask AI · Why does tight local government financing continue to trouble environmental companies getting paid?

Reporter Du Tao

The issue of accounts receivable that has continued to put pressure on environmental companies throughout 2024, while it saw a slight improvement in 2025, has not been significantly alleviated.

In the past month, Xue Tao, general manager of the E20 platform, held discussions with more than 30 environmental companies about accounts receivable. These companies mainly include municipal wastewater pipeline network operators and upstream and downstream companies. E20 is a platform dominated by environmental enterprises, with about 300 environmental enterprise member companies.

Xue Tao found that local governments’ ability to pay has not fundamentally improved. Although there are central government policy requirements, only a small portion of funds has been allocated, providing limited, localized relief; accounts receivable are still being rolled up and expanded.

Recently, he met with the head of an environmental company. The other person told him that in a certain northern province, across various prefecture-level cities and counties, there is no incremental funding at the local level to repay debts. They can only rely on central government transfer payments or issuing bonds. Companies watch local governments—every time a local government issues bonds or the central government sends down new funding, companies quickly go to demand payment. If they go fast, they may even get the money.

Annual reports from listed environmental companies that have been disclosed one after another also confirm this judgment. In an incomplete review by the Economic Observer, as of April 3, among 14 listed companies in the environmental protection industry with data disclosed, most environmental companies’ accounts receivable figures were still rising, but the proportion of accounts receivable to total assets was gradually declining.

Xue Tao believes that the contradictory situation reflected by the current accounts receivable problem (slower growth rate but still higher absolute amounts) is mainly due to three reasons: first, the local government situation of strained fiscal revenues and expenditures has not fundamentally improved, historical arrears have not been resolved, and the balance of accounts receivable will still increase; second, the central government has issued relevant policies to use some funds to resolve arrears problems, so the growth rate of accounts receivable has decreased somewhat; third, many newly built projects move into operations, which increases companies’ assets and also increases government payments. But because the payment cycle problem still exists, if government payments cannot keep up, it leads to a situation where assets increase and overdue accounts receivable increase in parallel.

Changes in the payment cycle

In the second half of 2025, Xue Tao conducted an industry survey in the municipal wastewater and waste treatment sectors. He found that the payment arrears cycle in these industries has reached more than one year, and both the payment cycle and the amounts are still increasing on a rolling basis.

Accounts receivable refers to the payments that companies should receive for selling goods or providing services, but that have not yet been collected for the time being. It is one of the most basic assets in business operations. For most environmental companies, the main source of accounts receivable comes from local governments and central state-owned enterprises (SOEs) and other state-owned enterprises.

The 2025 annual report of Sanfeng Environment (601827.SH) shows that the top five entities with overdue amounts are, respectively, the State Grid Chongqing Electric Power Company, Chongqing Sanfeng Zhengxing Environmental Energy Co., Ltd., the State Grid Sichuan Electric Power Company, Yunnan Power Grid Co., Ltd., and the Guangdong Power Grid Huaxian City Power Supply Bureau.

Entrepreneurial Environmental Protection (600874.SH), based on the top five ending balances by debtor, are Tianjin Water Affairs Bureau, Jieshou City Drainage Management Center, the People’s Government of Suzhou District, Jiuquan City, Xi’an Water Affairs Bureau, and Qujing City Urban Water Supply and Drainage Management General Company.

Green Momentum (601330.SH), based on the top five ending balances by debtor, are Beijing Tongzhou District Urban Management Commission, Shantou Chaoyang District Urban Management and Comprehensive Law Enforcement Bureau, Jinan Zhangqiu District Environmental Sanitation Operations and Maintenance Center, Haining City Comprehensive Administrative Law Enforcement Bureau, and Pingyang County Comprehensive Administrative Law Enforcement Bureau.

Energy-Saving Guozhen (300388.SZ) mentioned in its 2025 annual report that, affected by the fact that current government finances have not improved significantly, the collection of operating fees is delayed. At present, local governments’ finances are tight, and most project funding relies on special-purpose bonds, making it difficult to get repayments. Across the country, fiscal revenues and expenditures show a “tight balance,” and pressures on local fiscal balance are increasing, leading to difficulties paying operating expenses for wastewater treatment plants. Although the company has taken various measures to urge collections, there is still a risk that accounts receivable may be difficult to recover.

Regarding the accounts receivable difficulties faced by environmental companies today, Xue Tao analyzed that environmental companies that are SOEs do not need to worry about banks calling in credit early, but they have to spend more on capital costs. Private enterprises face far greater difficulties than SOEs: narrower financing channels and higher costs.

On February 28, the China Federation of Environmental Enterprises held a 2026 environmental entrepreneurs media meet-and-greet. This year, the association collectively coordinated member companies to draft two sets of proposals and motions. One of them is an initial draft of “A Motion on Safeguarding Operations and Maintenance of Stock Projects in the Ecological and Environmental Field” (referred to as the “Motion”).

The “Motion” points out that, at present, the pressure on environmental enterprises mainly comes from the decline in government fiscal revenues and land revenues. As local government debt management policies continue to tighten, the competent authorities for municipal environmental infrastructure projects in various cities increasingly withhold the amounts they owe for accounts payable, and the payment cycles are extended, resulting in strained capital chains for environmental enterprises—some companies even set up debt-clearing offices or assign dedicated personnel to collect receivables on a long-term basis.

A person in charge of an environmental company told the Economic Observer: “After companies are stuck with unpaid bills from local governments, downstream suppliers, equipment financing entities, and financial institutions will sue the companies. The courts will impose restrictions on high consumption on legal persons and actual controllers. The company’s main accounts may also be frozen.”

The person in charge currently has dozens of lawsuits involving them, and they are also “restricted on high consumption,” with personal assets frozen by banks. To ensure the company’s normal operations, it can only build another operating entity to maintain its business. “The main debtors are local governments and local SOEs. When you go to ask for money, their attitude is still okay, it’s just that they have no money. In the back-and-forth, they would rather ‘chat big’ than talk about repaying, and they will even drag the projects without accepting them for inspection, so they do not move into the payment stage,” the person in charge said.

How to respond

In recent years, the accounts receivable problem faced by environmental companies has become increasingly severe. Some environmental enterprises treat accounts receivable in their annual reports as a common challenge facing the industry. For example, Green Momentum mentioned that the industry faces multiple challenges, including intensified competitive dynamics, accelerated technology iteration, continuous tightening of environmental oversight, and longer accounts receivable settlement cycles.

As local governments face tighter fiscal revenues and expenditures and land transfer income continues to fall, local governments’ ability to generate “blood” internally and obtain incremental funding is becoming weaker and weaker, and cases of withholding payments to companies are becoming more and more frequent.

On June 1, 2025, the newly revised “Regulations on the Payment to Small and Medium-Sized Enterprises” officially took effect. It clearly states that the payment deadline for government agencies and public institutions shall not exceed 60 days, providing a direct legal basis to constrain government behavior of withholding payments. At the same time, special-purpose bonds have also become one of the important sources of funds for resolving debt.

The 2026 “Government Work Report” emphasizes that greater efforts should be made to address the problem of payments being withheld from enterprises, and long-term mechanisms should be improved. It also plans to allocate 4.4 trillion yuan in special-purpose bonds, with part of it explicitly earmarked for “absorbing and digesting government arrears to enterprises.”

Companies are also taking measures. Almost every environmental listed company whose annual report has been disclosed mentions the accounts receivable issue and related approaches.

In its annual report, CED Environmental Protection (300172.SZ) states that the company treats its collections work as an operational priority, explicitly linking collection outcomes directly to performance appraisal, and compacts the responsibility of the collection主体 (collection responsible party). It formulates special collection action plans for accounts receivable with long aging, advances collections through multiple measures, proactively innovates collection models, and leverages external professional resources to assist in recovering receivables—striving to improve collection efficiency and ensure the company’s cash flow remains continuously stable and its business development remains steady, orderly, and robust.

Byjet (300774.SZ) also mentions that although the company’s main customers are large enterprises with strong financial strength, and the company assigns dedicated personnel dedicated posts to pursue collection of accounts receivable, so that repayment recovery is guaranteed, if a company’s customers’ operating conditions or credit standing changes, or if the company’s collection measures are not effective, there may still be a risk that some accounts receivable cannot be collected in a timely manner. The possibility of bad debts may correspondingly increase, and this may affect the company’s operating performance and cause asset losses.

The response measures proposed by Haco Chasing Set (000068.SZ) are: the company will continuously and dynamically assess the repayment ability, fiscal affordability, and credit risks of cooperative local governments, and simultaneously strengthen risk control over its affiliated subsidiary enterprises. By proactively connecting with local governments and making full use of relevant policy support, it optimizes project return mechanisms and time horizons, and effectively improves the operating resilience and risk resistance of project companies. Based on actual circumstances, it will prudently judge and respond promptly to various potential risks.

The above-mentioned company executives said that they began urging governments to collect arrears through personal relationships, and even through various litigation methods. Although this approach may offend local governments, they suggested that the central government could standardize local governments’ project management behavior to prevent them from withholding enterprise funds using methods such as avoiding acceptance inspections or audits, and to ensure that funds are used for their intended purposes.

In discussions with companies, Xue Tao found that after being troubled for a long time by payment cycle problems, many environmental enterprises are seeking to change. For example, some environmental enterprises, if they cannot obtain the outstanding payments, will negotiate with the government to extend the term of their concession operating contracts. This means allocating the arrears across a longer concession period, which for the companies increases the period during which assets are held and during which fees are charged. In addition, some environmental enterprises will also promise to keep the money locally, because, in the context of policy support for local governments to resolve debts, the government needs to consider which delinquent enterprises its limited funds will be repaid to; the government will consider whether the enterprises will take the money away after repayment or keep it locally.

Xue Tao believes that in the short term, there is no effective way to resolve environmental companies’ payment cycle issues. He suggests that, given that local governments’ fiscal revenue and expenditure pressures continue to increase, the pricing mechanism for public services could be adjusted. For example, charging a municipal wastewater and garbage treatment cost of 300 yuan per year for each urban resident household could greatly alleviate the current situation in which funding is drying up in the environmental protection industry and local governments’ nonpayment issues are not effectively relieved.

He said this price is not an arbitrary estimate. It is based on the research team’s comparison of environmental cost-sharing mechanisms in major Western economies. It also does not fully copy foreign pricing systems; it is estimated by considering realistic factors such as China’s stage of economic development and actual purchasing power.