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Asia braces for insolvency storm amid COVID-19 fallout

As global recession looms, Asian businesses tighten their credit management processes in a bid to minimise bad debt risks.
15 Jun 2020
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Atradius Payment Practices Barometer highlights importance of risk management to Asian businesses. COVID-19 containment measures around the world have impacted both national and international supply chains and trade. Responses to the 2020 Atradius Payment Practices Barometer (PPB) survey in Asia suggest the resulting delays in payments are largely being financed by suppliers as the use of trade credit in most markets surveyed, and along with it, payment delays, have climbed. Compared to last year’s survey, in four of the markets surveyed, credit-based sales grew an average of 14% while at the same time the value of overdue invoices spiked 56%. In two markets credit sales fell, but overdue invoices still spiked an average 49%. India’s decline in credit use might even be the result of its dramatic rise in overdues.


Sample: businesses interviewed (active on domestic and export markets)
Source: Atradius Payment Practices Barometer Asia - June 2020

Although the Atradius PPB survey indicates a varied approach to trade credit across the region with marked differences between markets, it also reveals a consistent commitment to credit control. Without exception, businesses in every market expressed their dedication to credit management processes, with many seeking to increase their focus on minimising risk.

Interestingly, despite the gloomy outlook, most of the businesses surveyed across Asia expressed optimism that government support or bank finance would be available to help support their industries and the economy. While this may be true to a certain extent, the results of the PPB survey indicate that many buyers rely on trade credit from their suppliers to finance their operations, and extend that even more by delaying payment of invoices.

With the global economy dipping into recession payment default risks are growing. We expect bad debts and insolvencies to continue rising into 2021. Suppliers need to manage reduced demand and financial stress. Minimising these burdens with thorough credit worthiness assessments and ensuring adequate financial sustainability will be key to survival for many of these businesses.

Andreas Tesch
Chief Market Officer of Atradius

 

 

 

 

This survey was carried out in March 2020, at a relatively early stage in the Covid-19 pandemic and ensuing economic crisis. It represents an important snapshot of business confidence in Q1 2020. Looking forward, it will provide valuable information about the developing payment practices for this key economic region during the early days of the unfolding crisis.

The 2020 Atradius Payment Practices Barometer for Asia was conducted in China, Hong Kong, India, Indonesia, Singapore, Taiwan, and the United Arab Emirates (UAE), this latter featured in the survey for the first time. The reports can be accessed via the Publications section.