I was fortunate to meet with Alex Hall of Coface. Coface is the 3rd largest credit insurer worldwide. Alex discussed the company's most recent survey of corporate credit risks management in Asia Pacific. Albeit that the survey was conducted in December 2012, it is a valuable perspective, covering 2247 companies across 13 industry profiles, a wide range of businesses.
The survey snapshots what is happening with payments. It reveals an uncomfortable picture – and this is in a strong economic region of the world. Although there has been some improvement in the US economy since the survey, the rest of the world has not seen much advance and one can argue the state of China, Australia and others has deteriorated.
The key take-outs are a bit sobering.
► Payments are slowing and terms of payments are extending.
► Respondents say business is tougher due to market competition which is impacting margins.
► This is forcing them to provide extended credit. More companies in Australia, India and Taiwan offered credit terms to buyers, fewer did in Hong Kong.
► Companies report increases in overdue payments, especially in Hong Kong. 30% of Asia Pac companies report terms beyond 30 days with 50% saying this is due to customers' financial difficulties…in Asia this translates to a shortage of money, ie cash. Fraud has risen a little.
► More companies in China, Hong Kong, Singapore and Australia reported their overdue amount had increased in 2012….reflecting a deteriorating situation.
► In Australia, 83% of payments are overdues; in Singapore 68% and in Japan the figure is 42%.
► More than 85% of companies in Japan and Taiwan are able to keep their average overdue days shorter than 60 days; the respective figures for Australia was 77% and for Singapore 60%.
► Australian companies report increasing credit sales with 30 day terms reduced while 60 day terms have risen. In fact, 30% say payments have shifted into longer terms.
► One-third of companies do not have credit controls. (That's a worry)
► Japan and Taiwan companies have the best managed credit controls – the credit term norm in these countries is 90 – 120 days and positions are very well controlled.
► The majority of payments issues are being resolved by negotiation – a reflection of the importance and value of relationships.