Atradius expects global insolvencies to increase by 2%, in an environment of global GDP growth deceleration from 3.2% in 2018 to 2.7% in 2019. In this context, the rigorous evaluation of the risk of non-payment of B2B customers has become more complex and requires a strategic approach for Asia-Pacific companies that trade on credit, integrated into the global supply chain.
The Asia-Pacific markets continue to be the main engine of growth for the world economy. Although domestic demand in the region remains strong, several downside risks appear to cloud its growth prospects. The slowdown in trade in many countries has led companies in Asia-Pacific to increase their use of commercial credit in B2B transactions to maintain their competitiveness and gain market share.
As revealed by the May-Asia Payment Practices Barometer for Asia-Pacific, released by Atradius, the total value of B2B sales to credit in the region increased to 55.5% from 48.1% last year. The largest increase occurred in Australia, where it grew to 71.5% from 47.7%. The more frequent use of commercial credit increases the risks of customer default. 29.8% of the total value of B2B invoices issued by the companies studied in Asia-Pacific is affected by delinquency. By market, this percentage has its maximum value in India (39.0%) and the lowest in Japan (13.2%).
The assessment of the creditworthiness of the buyer prior to granting the credit terms is essential for the management of credit sales. Companies in Singapore (53%) and China (51%) are the most likely to carry out this process. Provisions against defaults are carried out by 41% of companies in Taiwan and Indonesia, compared to 33% in the region.
In order to maintain financial strength and avoid liquidity problems caused by non-payments, 41% of companies had to pay their own suppliers late. The frequency is higher among companies in India (51%) and Indonesia (46%). Ultimately, 2.1% of the total value of B2B sales on credit was written off as uncollectible, up from 1.9% in 2018. This rate suggests that companies are less successful in recovering bills that last year.
31% of companies in the Asia-Pacific region expect that the payment behaviour of their customers will deteriorate and that the bills due for more than 90 days will increase. The most affected are companies in India (52%), followed by Indonesia (35%). To protect their business against the current levels of commercial credit risk, 42% of companies in the region plan to increase the use of credit insurance. This percentage rises to 51% in China and Hong Kong and to 47% in Australia.
"The level of risk, instability and volatility in the current economic climate is increasing daily, and payment defaults worldwide are growing and, together with them, we anticipate a constant increase in insolvencies in the coming years. China, the main export destination of many economies in the region, along with the unresolved and potentially growing trade dispute between China and the United States, constitute risks that could further deteriorate international payment practices and prospects for global insolvency. In this scenario, it becomes much more complex for companies to make a solid assessment of the risks related to their credit sales, which requires a strategic approach to credit management, towards which we see a growing interest in Asia-Pacific, "explained the Chief Market Officer of Atradius, Andreas Tesch.
"In general, economic conditions in 2019 are expected to be more difficult than last year, but Atradius in Asia is well prepared to manage the negative risks faced by companies Our understanding of the global economy, as well as of local markets In Asia, it is essential to help our clients grow their businesses, our clients can be sure that we have the underwriting knowledge that can help them avoid unpaid bills, as much as possible, and direct them towards healthy businesses and opportunities ", explained the General Manager of Atradius Asia, Eric den Boogert.