Asia braces for insolvency storm amid COVID-19 fallout

Asia braces for insolvency storm amid COVID-19 fallout

By DigitalCFO Asia

Date: 11 June 2020

A payments survey across 7 Asian countries has seen an increase in delay payments and overdue invoices across businesses in Asian. The imminent global recession is making Asian businesses tighten their credit management processes to minimise bad debt risks, according to Atradius Payment Practices Barometer (PPB) 2020 survey.

Conducted in China, Hong Kong, India, Indonesia, Singapore, Taiwan, and the UAE (United Arab Emirates) in March 2020, the Atradius Payment Practices Barometer highlights importance of risk management to Asian businesses.

COVID-19 containment measures around the world have greatly impacted both national & international supply chains and trade, causing payment delays due to the use of trade credit in most markets surveyed. Suppliers bore the brunt of the payments owed due to trade credit being commonly extended to business partners.

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 the two markets (India & Singapore) which credit sales actually fell, overdue invoices still spiked an average 49%. India’s decline in credit use might even be the result of its dramatic rise in overdues.

“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

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. Businesses in every market expressed their dedication to credit management processes, with many seeking to increase their focus on minimising risk.

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.

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