Economic uncertainty boosts APAC trade credit risk

Nearly 90% of businesses in Asia Pacific reported having late invoice payments from October 2015- 2016, according to data from trade credit insurer Atradius. This is significantly higher than the 64% figure that Coface reported this week from its 2016 full-year survey.

Both insurers surveyed over 2,500 corporates from Australia, China, Hong Kong, India, Indonesia, Japan, Singapore and Taiwan and Coface included data from Thailand.

The 90% figure is consistent with observations in the US and Europe and indicates a widespread culture of late payment at a global level, the 2016 Atradius Asia Pacific Payment Practices Barometer reported.

The exceptions to this number are Australia, with 81% of respondents reporting late payment by B2B customers and Japan with 57% reporting the issue.

Economic uncertainty

Eric den Boogert, managing director of Atradius Asia, tells GTNews: “Although economies in Asia Pacific show decent economic growth compared to rest of the world, a record number of companies have seen delayed payments which is also supported by our own claims data.”

Andreas Tesch, chief market officer of Atradius, adds: “Global growth, which is set to expand 2.4% this year (steady with last year) continues to be held back by low commodity prices, insufficient consumer demand in advanced markets, Chinese economic rebalancing, uncertainty surrounding global monetary policy, and geo-political risks.

The percentage of overdue payments hit the highest level in four years, as overdues exceeding 120 days rose to 12.5% – up 4.3% from 2015 figures, according to Coface data.

Deteriorations were noted in China, India and Thailand, while other countries remained stable in terms of payment experience.

Customers intentionally delaying payments to finance their own business was reported by 27% in Atradius’ survey. A further 27% reported payments being delayed by the complexity of the payment procedure.

The tech behind the trends

Undoubtedly, fast, secure and efficient domestic and cross-border payment solutions enable a faster turnaround of good and services. It also secures operational capital, supports business growth and positively impacts the economic growth of a country. Whereas, unpaid invoices and late payments directly hurt business operations, bankrupt small companies and slow down value creation in the economy.

Many Asian countries with fast growing economies are experiencing a very high rate of technological growth. Sofia Freyder, global head of product marketing at cross-border payment firm Earthport, says: “What I have seen is that a number Asian countries present co-existence of extremely old technologies and procedures (manual processes) along with the most advanced technological solutions (such as highly robust APIs and mobile solutions). To me, Asia is the region of dialectics – continued interaction of opposites.”

Some of the most common cross-border payments solutions used are SWIFT, Alliant Credit Union (ACH) hubs and Money Transfer Organisations (MTOs) with Cash. “E-wallets, m-wallets and cards are growing but still have small market share,” Freyder tells GTNews.

However, even the more advanced payment solutions are not without their problems. “I think SWIFT has similar fall-backs globally such as unpredictable deductions, problems with transaction tracking and slow delivery,” says Freyder.

Not only is Asia quickly embracing global finance solutions but it is also developing its own technology at a rate of knots. Much of these solutions are mobile. For example, India has National Electronic Funds Transfer (NEFT) and real time gross settlement (RTGS). In China, there is Alipay and the Chinese answer to WhatsApp, WeChat, which has grown into far more than an instant messaging app. It now allows commerce and payment services via mobile application.

WeChat digital wallet allows users to perform mobile payments such as P2P Payments, payments for good and services, bill payments, retail store payments, book doctor appointments, paying electricity fees or traffic fines, book transportation.

Knowledge is power

Credit insurance is still a relatively new product in Asia so the product’s market penetration varies regionally. It also remains a discretionary insurance product and given the fact that most of Asia is still classified as ‘emerging’, corporates tend to focus on their core needs and insurance products are mostly not on the top of the list, says Atradius.

When working in a new market, no business should assume that the procedure for collecting payments is the same overseas as it is at home, Mike Rowan, regional manager of Atradius, tells GTNews.

“Every region and country has its own unique nuances when it comes to collecting payments; influenced by a combination of business, legal and cultural practices,” he explains. “Prepare yourself with the local knowledge in advance of finalising any trade deal so you can incorporate any legalities and prospective resolutions for payment collection within your contract which will put you on the best footing should things go wrong.”

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