Payment delays in Asia have increased, according to new economic research by leading trade credit insurer Atradius.
The Atradius Payment Practices Barometer, released today (10th June 2020) measures the changing pattern of payment behaviour in B2B trade. In a survey conducted in March this year, Atradius found that businesses in Asia reported more than half (52%) of B2B invoice payments as late, a significant increase from under a third (30%) year on year.
More than one in 10 invoice payments (13%) are reported to be in excess of 90 days late with 3% of B2B invoices by value written off as uncollectable. Looking forward, the report found half of Asian businesses (52%) expect to face more late payments – a rise from 42% last year – while 35% expect to experience more write-offs in the next 12 months.
With the global economy dipping into recession payment default risks are growing. Many of the Asian markets included in the barometer correlate the rise in payment delays with the increased use of trade credit; a trend notable in China, Hong Kong, Indonesia and Taiwan where credit-based sales grew an average of 14% and the value of overdue invoices spiked to 56%. India and Singapore have both seen a fall in credit sales but overdue invoices still climbed to an average of 49%. Indeed, the Atradius report raises the question whether India’s decline in credit use might be atrributable to its dramatic rise in overdues.
As the global economy responds to the coronavirus pandemic, Asian businesses are tightening their credit management processes in a bid to minimise bad debt risks. The Atradius Payment Practices Barometer reports while there is a varied approach to trade credit across Asia, there is a consistent commitment to credit control. Without exception, businesses in every market expressed their dedication to credit management processes, with many seeking to increase their focus on minimising risk. This ranges from a reduction in single-buyer concentrations and demands to cash payments to requests for letters of credit, payment guarantees and the adoption of trade credit insurance.
Despite the impact of the Covid-19 pandemic, only one in five (19%) expect business performance to worsen in the year ahead. However, while Covid-19 was already wide spread on the region in March, the research was conducted at a relatively early stage of the global transmission of the virus and ensuing economic crisis. Nevertheless, the report represents an important snapshot of business confidence in Q1 2020. Looking forward, it will provide valuable information about the developing payment practices for this key economic region.
Richard Reynolds, Head of Strategic accounts at Atradius UK, said: “The Covid-19 pandemic and ensuing containment measures around the world have impacted both national and international supply chains and trade. With the global economy dipping into recession, payment default risks are growing and we expect bad debts and insolvencies to continue rising into 2021. Accordingly, it is imperative suppliers take proactive measures to manage reduced demand and financial stress. Minimising these burdens with a robust credit management strategy, including thorough credit-worthiness assessments and ensuring adequate financial sustainability, will be key to survival for many of these businesses.”
The 2020 Atradius Payment Practices Barometer for Asia was conducted in China, Hong Kong, India, Indonesia, Singapore, Taiwan, and the United Arab Emirates (UAE), this latter featured in the survey for the first time. The reports can be downloaded from the Atradius website https://atradius.co.uk by visiting the publications pages.