Treasury Today Country Profiles in association with Citi

APAC Inc troubled by late payments

People walking across a crosswalk on a rainy day in Asia

Non-payment risks escalate in APAC as companies show a looser approach to credit risk, says latest Asia corporate payment survey.

Non-payment risk in Asia Pacific (APAC) escalated in 2016 due to financial stress and looser corporate credit controls. In total, 64% of companies experienced overdue payments, and the average overdue days lengthened in comparison to the previous year.

These are the headline findings of the latest Coface Asia Corporate Payment Survey, which quizzed just under 3,000 companies from eight APAC markets about payment trends.

Smoke and mirrors

Despite over two-thirds of companies experiencing overdue payments in 2016, this number was down slightly from 2015. This relatively positive news has been met with an increase in business sentiment, with 30% of companies confident in their customers’ ability to pay, up from 26% in 2015.

Whilst encouraging, Coface is keen to point out that the most worrying finding of their report is the number of companies experiencing ultra-long overdue payments (payments over 180 days late). In 2016, 12.5% of the companies surveyed had experienced such delays. This is the highest number for four years and up from 8.2% in 2015.

Over a quarter of the companies experiencing ultra-long overdue payments said that these payments exceeded 2% of their total annual turnover. This is especially concerning as these late payments cause significant financial stress and cash flow issues for many businesses. Coface research also suggests that 80% of ultra-long overdue payments are unlikely to be paid at all.

Customer financial difficulties were cited as being the main reason for late payments. These difficulties are created by a mixture of fierce competition and slow economic growth in some markets, according to survey respondents.

Loose credit control

However, more companies seem buoyed by the fact that overall overdue payments have decreased. This has manifested itself in companies practising looser credit control. Indeed, the survey highlights that only half of respondents checked and monitored buyer credit worthiness in 2016.

As the focus on credit risk is decreasing, companies are also offering customers increased credit terms. The survey finds that on average credit terms have increased from 55 days in 2015 to 59 days in 2016. More companies than ever are also offering long credit terms of 90 and 120 days. The primary reason for companies offering such terms is because their customers are experiencing liquidity issues.

Market challenges

Companies in China are experiencing the biggest pain due to overdue payments. Despite some improvement, 68% of companies still had to deal with overdue payments. Over half of these experienced ultra-long overdues. Paradoxically, China has the largest number of companies offering sales credit in the region.

Overdue payments are also troubling companies in India. The proportion of respondents experiencing ultra-long overdue amounts exceeding 2% of annual turnover in India was ‘very high’, despite there being some improvement vis-à-vis 2015.

Elsewhere, Thailand registered the highest increase in respondents with ultra-long overdue amounts exceeding 2% of annual turnover in 2016. Ultra-long overdue amounts as a percentage of annual turnover deteriorated in Australia and Japan but improved in Singapore and Hong Kong.

Tools of the trade

Overdue payments remain a big issue for companies in APAC. To mitigate the risk, many companies are turning to credit management tools and credit rating agencies. Trade credit insurance, debt collection and factoring are also used to mitigate the risk.

Amicable negotiation remains the most popular method for resolving overdue payments in the region. However, the report finds that more companies are turning to legal action to resolve these issues. This may be correlated to the fact that overdue payments are creating more acute cash flow problems, and companies are tolerating late payments less than ever before.

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