Indonesia: economic outlook appears highly uncertain

Indonesia: business confidence remains positive despite economic challenges Indonesia: economic outlook appears highly uncertain The global economic downturn triggered by the coronavirus pandemic has severely affected Indonesia’s economic performance. Introduction Although the full impact of the coronavirus outbreak on the economy of Indonesia is still to be assessed, the country’s trade links with China and the dependence of its exports on commodities has exposed Indonesia to downside risks to its growth and insolvency levels this year. Key takeaways from the report As a direct consequence of financial stresses and indebtedness, much arising out of the COVID-19 pandemic, the majority of respondents to our survey in Indonesia predict an increased dependence on bank finance. Many businesses also revealed that they would revert to requests for payments in cash and would strengthen their internal credit control procedures, including outsourcing debt collection, in response to a heightened risk of payment default. This risk-averse tendency can also be found in other results of the survey such as the fact that Indonesia offers the shortest average payment terms of all of the countries surveyed in Asia. This may have been prompted by difficulties in collecting on invoices, with a sizable proportion of respondents reporting spending as much as 50% of the value of B2B invoices on collection. Businesses that have struggled to manage cash flow in this way may benefit from avoiding collection challenges upfront by seeking robust payment guarantees. These can range from cash payments, to bank guarantees and other credit management processes such as credit insurance. Key survey findings for Indonesia Use of trade credit as a source of short-term finance remains low compared to regional average Extended payment terms back up short-term finance role of B2B trade credit Cash payments still more common in B2B trade than Asia average Indonesian businesses hit by significant increase in late payments Majority of businesses in Indonesia expect increased dependence on bank finance Interested in getting to know more? For a complete overview of the payment practices in Indonesia and in the chemicals, ICT/electronics and paper industries in Indonesia, please download the complete report.