Rising insolvencies increase demand for credit insurance in Asia Pacific

While global GDP growth is forecast to slow from 3.2% in 2018 to 2.7% this year, global insolvencies are expected to rise by 2%. As an integral part of the global supply chain, businesses trading on credit perform a detailed assessment of the risk of payment default of their B2B customers. However, in today’s global marketplace this has become more complex, requiring a more strategic approach to credit management.

The Asia Pacific economies continue to be the main growth engine for the world’s economy. While domestic demand in the region remains robust, a number of negative risks appear to cloud the growth outlook. Slowing trade growth in many countries is prompting businesses in the region to increase their use of trade credit in B2B transactions to stay competitive and gain market share.

As revealed by the latest Atradius Payment Practices Barometer survey for Asia Pacific, the total value of B2B sales on credit in the region has increased to 55.5%, up from 48.1% last year. The strongest increase is in Australia rising from 47.7% in 2018 to 71.5% in the current year. The more frequent use of credit terms also raises the risk of payment default and around a third of all B2B invoices issued by respondents to the survey were reprted as overdue. India reported the highest level of overdues (39.0%) whereas Japan reported the lowest at 13.2%.

Assessing a customer’s creditworthiness prior to giving credit terms, is essential to the credit sales process, but not all businesses have a robust process in place. Respondents in Singapore (53%) and China (51%) are the most likely to perform a detailed assessment. Reserving against bad debts is practiced by 41% of respondents in Taiwan and Indonesia, compared to an average of 33% across the region.

To avoid liquidity issues caused by payment defaults, 41% of respondents were forced to delay payments to their own suppliers. This was most often expressed by respondents in India (51%) and Indonesia (46%). The survey also shows that over 2% of the total value of respondents B2B credit sales was written off as uncollectable. This figure shows a slight upward trend from last year.

On average, 31% of respondents in Asia Pacific expect their customers’ payment behaviour to deteriorate, and anticipate that the level of invoices that are more than 90 days overdue will increase with respondents from India (52%), and Indonesia (35%) expressing the most concern.

To protect their business against rising trade credit risk, 42% of respondents in the region said they will increase the use of credit insurance. In China the percentage is higher at 51% with Hong Kong. Australia close behind at 47% respectvively.

Alun Sweeney, Regional Director for Atradius UK & Ireland, commented “This report highlights what we already know, that the increasing instability and volatility in the economic climate is reflected in increased levls of risk. Payment defaults across the globe are rising and we anticipate a rise in insolvencies in the coming years. A robust strategy to manage the risks associated with trading on credit is vital. Our understanding of the global economy, as well as of local markets across the world, is central to helping our customers to trade sucessfully.”