Atradius recently released its 2021 Payment Barometer study for the Asia region.  The report highlighted ‘businesses experienced serious setbacks to growth and needed to take several measures to face the changed economic and trade circumstances’ due to the pandemic over the last year.  Whilst the pandemic is still an on-going challenge across the region, half of businesses have positive sentiments about their business growth for the next 12 months. 

B2B sales in Asia

On average, 56% of domestic B2B sales in Asia are made on credit.  44% of surveyed companies increased their appetite in credit sales over the last year.  More companies are using trade credit as a selling tool to help them stay competitive (both winning new customers and retaining existing ones).

It was noted that credit terms should be extended with care and with a stringent invoicing and collection process in place. This undoubtedly will increase administrative costs and should be factored into overall business costs.  An increase in bad debt should also be considered, especially with the business uncertainties during this pandemic. 

Top 5 businesses challenges

The report has found that the main challenge to business profitability is maintaining adequate cash flow.  As sales are tight and Day Sales Outstanding (DSO) is longer than before, the cash flow gap between when sales are made and when payment is finally received widens.  This puts a large strain on businesses cash flow.

Increase in DSO and late payment

~40% of surveyed businesses reported experiencing an increase in DSO.  Customers are taking longer to pay invoices.  With Asia’s average DSO of 104 days, Singapore is at 39 days. 

The study has also shown that 50% of the total value of all B2B credit sales in Asia were paid late.    Overdue invoices increase the likelihood of bad debt. The greatest increase in bad debts was reported by businesses in Indonesia (43% of respondents) and was most frequent among large businesses in the wholesale sector in the chemicals and pharma industry. 

The hardest hit market for pverdue payment was the UAE where 60% of total overall B2B credit sales were late, followed by Hong Kong and Singapore at 52%.

To tackle the cash flow challenges, businesses opted for the following strategies:

1. Spending more resources on collecting overdue invoices.
2. Strengthening credit control procedures, from conducting more stringent credit assessment on potential customers prior to extending any trade credit.
3. Delaying payments to their own suppliers to balance own cash flow needs.
4. Obtaining additional financing to support operations.

Simple financing to strengthen cash flow

As maintaining adequate cash flow will be an on-going concern for businesses across Asia,  Invoice Financing has been a popular tool that many businesses have utilised to help solve the cash flow problem.  Businesses are able to sell their outstanding invoices to an external financier like InvoiceInterchange and receive funds within 24 hours for a small fee.  Longer credit terms and delayed payments will no longer give you the cash flow headache once you have an invoice finance facility in place.  It is flexible and you decide when to sell your invoices and how much to sell.  It is all based on your business needs.

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Despite poor payment performance, businesses are still showing positive sentiment.   Over half of businesses surveyed expressed confidence that their businesses will grow over the next year as domestic economies strengthen.  

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