Atradius reveals fear of rising insolvencies drives up demand for credit insurance in Asia Pacific
While global GDP growth is forecast to slow from 3.2% in 2018 to 2.7% this year, global insolvencies show a reverse trend and are expected to rise 2%. Addressing these outside factors, businesses that trade on credit are advised to perform thorough due diligence and risk assessment of their B2B customers. Atradius suggest a strategic approach to credit management to avoid the pitfalls of possible payment defaults.
Asia Pacific economies continue to be the main growth engine of the world economy. Although domestic demand in the region remains robust, several downside risks appear to cloud the growth outlook. The slowing trade growth in many countries prompts Asia Pacific businesses to increase their use of trade credit in B2B transactions to stay competitive and gain market share.
With an upgraded question catalogue for the 2019 release of the Atradius Payment Practices Barometer Asia Pacific, the survey finds that the total value of B2B sales on credit in the region increased to 55.5%, up from 48.1% last year. The biggest increase is found in Australia rising to 71.5% from 47.7% last year, which means that the overall more frequent use of trade credit raises the risk of customers’ payment default. On average, 29.8% of the total value of B2B invoices issued by respondents in Asia Pacific was overdue. This percentage is highest in India (39.0%) and lowest in Japan (13.2%).
A key element of credit management is assessing the buyer’s creditworthiness, prior to giving credit terms, which survey respondents in Singapore (53%) and China (51%) are the most likely to perform this. Reserving against bad debts, should the assessments turn into a non-payment, is practiced by 41% of respondents in Taiwan and Indonesia, versus only 33% in the region overall.
To remain financially sound and avoid liquidity issues caused by payment defaults of customers, 41% of respondents had to pay their own suppliers late. This was most often expressed by respondents in India (51%) and Indonesia (46%). Ultimately, an average of 2.1% of the total value of respondents B2B sales on credit (up from 1.9% last year) was written off as uncollectable.This suggests that businesses are less successful in collecting invoices than last year.
A concerning 31% of respondents in Asia Pacific expect customers’ payment behaviour to deteriorate, and long overdue invoices (more than 90 days overdue) to increase, most alerted are respondents from India (52%) and Indonesia (35%). To protect their business against the rising trade credit risk, 42% of respondents in the region said they will increase the use of credit insurance, for China and Hong Kong this percentage rises to above 50%.
Eric den Boogert, managing director of Atradius Asia commented “Overall, economic conditions in 2019 are expected to be more challenging than last year. But Atradius in Asia is well prepared to manage the downside risks that businesses are facing. Our understanding of the global economy, as well as of local markets across Asia, is central to helping our customers’ grow their businesses. Our customers can be confident that we have the underwriting knowledge that can help them avoid unpaid invoices as much as possible and steer them towards healthy businesses and opportunities”.
The 2019 Atradius Payment Practices Barometer for Asia Pacific is annually conducted in Australia, China, Hong Kong, India, Indonesia, Japan, Singapore and Taiwan. The 2019 survey questions were upgraded to reflect that payment on credit has increased over the last year’s in the Asia Pacific region, making the report an invaluable tool to any business trading on credit. The reports can be downloaded from the Atradius website at www.atradius.sg