Atradius reveals fear of rising insolvencies drives up demand for credit insurance in Asia Pacific

Over 44% of businesses in the region will increase bad debt reserves, given the challenging business environment

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HONG KONG, CHINA - Media
OutReach - 20 May 2019 - While global GDP growth is forecast to slow from 3.2% in 2018 to 2.7% this
year, global insolvencies show a reverse trend and are expected to rise 2%.
Addressing these outside factors, businesses that trade on credit are advised
to perform thorough due diligence and risk assessment of their B2B customers.
Atradius suggest a strategic approach to credit management to avoid the
pitfalls of possible payment defaults.

 

Asia Pacific economies
continue to be the main growth engine of the world economy. Although domestic
demand in the region remains robust, several downside risks appear to cloud the
growth outlook. The slowing trade growth in many countries prompts Asia Pacific
businesses to increase their use of trade credit in B2B transactions to stay
competitive and gain market share.

 

With an upgraded question
catalogue for the 2019 release of the Atradius Payment
Practices Barometer Asia Pacific, the survey finds that the total value
of B2B sales on credit in the region increased to 55.5%, up from 48.1% last
year. The biggest increase is found in Australia rising to 71.5% from 47.7%
last year, which means that the overall more frequent use of trade credit
raises the risk of customers’ payment default. On average, 29.8% of the total
value of B2B invoices issued by respondents in Asia Pacific was overdue. This
percentage is highest in India (39.0%) and lowest in Japan (13.2%).

 

A key element of credit
management is assessing the buyer’s creditworthiness, prior to giving credit
terms, which survey respondents in Singapore (53%) and China (51%) are the most
likely to perform this. Reserving against bad debts, should the assessments
turn into a non-payment, is practiced by 41% of respondents in Taiwan and
Indonesia, versus only 33% in the region overall.

 

To remain financially sound
and avoid liquidity issues caused by payment defaults of customers, 41% of
respondents had to pay their own suppliers late. This was most often
expressed by respondents in India (51%) and Indonesia (46%). Ultimately, an average
of 2.1% of the total value of respondents B2B sales on credit (up from 1.9%
last year) was written off as uncollectable.This suggests that businesses are
less successful in collecting invoices than last year.

A concerning 31% of
respondents in Asia Pacific expect customers’ payment behaviour to deteriorate,
and long overdue invoices (more than 90 days overdue) to increase, most alerted
are respondents from India (52%) and Indonesia (35%). To protect their business
against the rising trade credit risk, 42% of respondents in the region said
they will increase the use of credit insurance, for China and Hong Kong this
percentage rises to above 50%.

 

Eric den Boogert, Managing
Director of Atradius Asia commented “Overall, economic conditions in 2019 are expected
to be more challenging than last year. But Atradius in Asia is well prepared to
manage the downside risks that businesses are facing. Our understanding of the
global economy, as well as of local markets across Asia, is central to helping
our customers’ grow their businesses. Our customers can be confident that we
have the underwriting knowledge that can help them avoid unpaid invoices as
much as possible and steer them towards healthy businesses and opportunities”.

 

The 2019 Atradius Payment Practices
Barometer for Asia Pacific is annually conducted in Australia, China, Hong Kong,
India, Indonesia, Japan, Singapore and Taiwan. The 2019 survey questions were
upgraded to reflect that payment on credit has increased over the last year’s
in the Asia Pacific region, making the report an invaluable tool to any
business trading on credit. The reports can be downloaded from the Atradius website
at www.atradius.sg

About Atradius

Atradius is a global provider of credit insurance, bond and surety,
collections and information services, with a strategic presence in over 50
countries. The products offered by Atradius protect companies around the world
against the default risks associated with selling goods and services on credit.
Atradius is a member of Grupo Catalana Occidente (GCO.MC), one of the largest
insurers in Spain and one of the largest credit insurers in the world. You can
find more information online at https://group.atradius.com

 

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