India: sharp rise in cost of offering B2B trade credit

Introduction

Evidence of the difficulties faced by many businesses in India during this challenging time can be seen in the results of this year’s Payment Practices Barometer survey. Although it  is fair to say that most of the businesses we interviewed across Asia reported some  economic impact of Covid-19, businesses in India were particularly hard hit. This is partly due to international supply chain disruptions, which particularly impacted India’s import and exports in the textiles and pharmaceuticals businesses. In the context of the pandemic economic stressors, it is not surprising that India reported more late payments and write-offs than most of Asia.

The Atradius Payment Practices Barometer provides us with the valuable opportunity to  hear directly from businesses how they are coping with changed trading and economic  circumstances caused by the pandemic. The survey questionnaire was completed by  businesses in India during Q2 2021, a full year after the World Health Organisation declared Covid-19 a global pandemic.

Key takeaways from the report

The impact of the pandemic recession can be seen in the deteriorating payments behaviour of India’s business customers. Significantly more businesses in India than in Asia told us that their customers were delaying payment, on average up to one month longer than last year. A substantial number of businesses – again many more than the Asian average – also reported trying to support the flow of trade by giving their customers longer to settle.

Despite recording some of the worst results in this year’s Payment Practices Barometer survey, many more businesses in India than their peers in Asia told us that they expect to see an improvement in their business performance over the next 12 months. The majority expect the improvement to come from the forecast rebound in both the domestic and
international economies.

9% of India’s credit sales in the textiles industry were written-off last year and 52% were reported overdue. Both of these performance indicators were higher than industry regional averages. Interestingly credit insurance is used far less by the industry in India than in Asia.

Key survey findings for India

• Credit sales significantly increased in the months following the outbreak of the pandemic
• Use of trade credit insurance on the rise over the coming months
• Businesses use credit to strengthen trade relationships during pandemic
• Credit management and trade debt collection costs increased
• Payment terms most often reflect company standards

Interested in getting to know more?

For a complete overview of the payment practices in Indonesia and in the local chemicals/pharma, ICT/electronics and textile industries, please download the complete report.