Over 44% of businesses in the region will increase bad debt reserves, given the challenging business environment
HONG KONG, CHINA - MediaOutReach - 20 May 2019 - While global GDP growth is forecast to slow from 3.2% in 2018 to 2.7% thisyear, global insolvencies show a reverse trend and are expected to rise 2%.Addressing these outside factors, businesses that trade on credit are advisedto perform thorough due diligence and risk assessment of their B2B customers.Atradius suggest a strategic approach to credit management to avoid thepitfalls of possible payment defaults.
Asia Pacific economiescontinue to be the main growth engine of the world economy. Although domesticdemand in the region remains robust, several downside risks appear to cloud thegrowth outlook. The slowing trade growth in many countries prompts Asia Pacificbusinesses to increase their use of trade credit in B2B transactions to staycompetitive and gain market share.
With an upgraded questioncatalogue for the 2019 release of the Atradius PaymentPractices Barometer Asia Pacific, the survey finds that the total valueof B2B sales on credit in the region increased to 55.5%, up from 48.1% lastyear. 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 creditraises the risk of customers' payment default. On average, 29.8% of the totalvalue of B2B invoices issued by respondents in Asia Pacific was overdue. Thispercentage is highest in India (39.0%) and lowest in Japan (13.2%).
A key element of creditmanagement is assessing the buyer's creditworthiness, prior to giving creditterms, which survey respondents in Singapore (53%) and China (51%) are the mostlikely to perform this. Reserving against bad debts, should the assessmentsturn into a non-payment, is practiced by 41% of respondents in Taiwan andIndonesia, versus only 33% in the region overall.
To remain financially soundand avoid liquidity issues caused by payment defaults of customers, 41% ofrespondents had to pay their own suppliers late. This was most oftenexpressed by respondents in India (51%) and Indonesia (46%). Ultimately, an averageof 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 areless successful in collecting invoices than last year.
A concerning 31% ofrespondents in Asia Pacific expect customers' payment behaviour to deteriorate,and long overdue invoices (more than 90 days overdue) to increase, most alertedare respondents from India (52%) and Indonesia (35%). To protect their businessagainst the rising trade credit risk, 42% of respondents in the region saidthey will increase the use of credit insurance, for China and Hong Kong thispercentage rises to above 50%.
Eric den Boogert, ManagingDirector of Atradius Asia commented "Overall, economic conditions in 2019 are expectedto be more challenging than last year. But Atradius in Asia is well prepared tomanage the downside risks that businesses are facing. Our understanding of theglobal economy, as well as of local markets across Asia, is central to helpingour customers' grow their businesses. Our customers can be confident that wehave the underwriting knowledge that can help them avoid unpaid invoices asmuch as possible and steer them towards healthy businesses and opportunities".
The 2019 Atradius Payment PracticesBarometer for Asia Pacific is annually conducted in Australia, China, Hong Kong,India, Indonesia, Japan, Singapore and Taiwan. The 2019 survey questions wereupgraded to reflect that payment on credit has increased over the last year'sin the Asia Pacific region, making the report an invaluable tool to anybusiness trading on credit. The reports can be downloaded from the Atradius websiteat www.atradius.sg
Atradius is a global provider of credit insurance, bond and surety,collections and information services, with a strategic presence in over 50countries. The products offered by Atradius protect companies around the worldagainst the default risks associated with selling goods and services on credit.Atradius is a member of Grupo Catalana Occidente (GCO.MC), one of the largestinsurers in Spain and one of the largest credit insurers in the world. You canfind more information online at https://group.atradius.com
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