Many Asian companies foresee a spike in payment risk in the coming months. Ultra-long payment delays are a growing concern, and bad debt is impacting businesses’ financial health driven by global trade policy uncertainty, liquidity constraints, and worsening B2B payment behavior.
According to Atradius Payment Practices Barometer, which gathers sentiment from companies across China, Hong Kong, India, Indonesia, Japan, Singapore, Taiwan and Vietnam, companies are revealing a spike in financial vulnerabilities and unease about how global trade policy uncertainties will impact on domestic economies.
Late payments affect 44% of B2B credit sales with bad debts averaging 5%, impacting profitability. Businesses cite customer liquidity issues, delays in customers’ payment processes, invoice disputes and supply chain disruptions as the top reasons for late payments.
While some companies are cautiously optimistic about future sales and profits, others are fearful about cash flow problems and a deterioration in B2B customer payment behaviour. A significant 50% of firms also believe there will be a rise in customer insolvencies in the months ahead, threatening financial health.
“The latest findings from our Payment Practices Barometer for Asia reveal critical insights into the operational challenges faced by businesses. Issues like increasing bad debts, trade policy uncertainties, compliance pressures, and sustainability initiatives are prominent,” says Eric den Boogert, Managing Director of Atradius in Asia. However, Boogert also notes cautious optimism as companies acknowledge these challenges and explore solutions. “This includes adapting to market changes and ensuring optimal liquidity while effectively managing risk through strategies like outsourcing credit risk management to enhance traditional internal measures.”
The survey found that three in five Asian companies (60%) have expanded trade credit offerings but kept payment terms steady to limit exposure to payment risks while maintaining customer loyalty and encouraging sales. Furthermore, 54% of all B2B sales are transacted on credit with 48-day average payment terms, highlighting the central role credit plays in financing trade across Asia.
Bank loans, invoice financing and internal funds have served as the other key sources of funding over the past 12 months.
Macro challenges
Businesses are also grappling with macro challenges, growing regulatory compliance burdens and the pressures to adopt sustainable practices to address environmental concerns. As well as uncertainty around cash flow cycles and working capital management, companies are also concerned about inventory turnover, with 50% of firms expecting steady turnover and the other half forecasting stock build-ups which could put significant strain on liquidity. Little change is anticipated in payment times to suppliers (DPO), but 33% of companies may consider delays to help with cash flow management.
Atradius found bank loans are the most popular source of external funding to help companies deal with liquidity issues in the current tough economic environment. Supplier credit and invoice financing are also important to many firms.
“The rising worry about a deteriorating trend in B2B customer payment behaviour probably explains why 60% of businesses already use a combination of internal funds and outsourced credit management, such as insurance, to mitigate the risk of customer payment defaults. This figure is likely to rise because companies are aware that relying solely on internal resources can freeze up cash that might be used for operations or investment,” cite the report authors.
The latest report follows The Asia Payment Survey, conducted by Coface earlier this year which provided insights into the evolution of payment behaviour and credit management practices of about 2,400 companies across the Asia Pacific region. It found the share of companies reporting ultra-long payment delays (ULPDs) exceeding 2% of annual turnover rose to a new high at 40%, up from 23% in 2023.
This represents a very high risk, given that 80% of these delays have never been paid, according to Coface’s experience.
Delays were highest in China, India, Thailand and Malaysia in timber, agri-food and automotive sectors particularly. In China, auto suppliers have raised complaints about prolonged payment periods (beyond 60 days), and authorities are now enforcing shorter payment mandates to address growing discontent.
