Asia Braces for Insolvency Storm
Wednesday, June 10, 2020
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.
“With the global economy dipping into recession payment default risks are growing,” said Andreas Tesch, Chief Market Officer of Atradius. “We expect bad debts and insolvencies to continue rising into 2021. Suppliers need to manage reduced demand and financial stress. Minimizing these burdens with thorough credit worthiness assessments and ensuring adequate financial sustainability will be key to survival for many of these businesses.”
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 minimizing 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.
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.