Overall business payment performance in Hong Kong improves

Yet future uncertainties brought about by geopolitical tensions in the Middle East and repercussions from Japan earthquake may bring down overall confidence in buyers’ payment ability.

A survey of payment experiences among Hong Kong businesses during the fourth quarter of 2010 – conducted by Coface, the leading international credit insurance and credit management services group – has revealed that both late and default payments are improving with Hong Kong enterprises having a higher tendency to accept longer overdue period.

According to the survey, 20.9% of respondents experienced late payments from buyers in the fourth quarter of 2010, which is 5.5% lower than the previous quarter (22.1%) and is the record low since 2008. Meanwhile, 3.9% of respondents reported default payments by buyers in Q4 2010, which is 21.6% lower than the previous quarter (5.0%). But at the same time, the survey also revealed that Hong Kong enterprises are willing to accept longer overdue period, as only 48.3% of respondents consider overdue payment under 120 days as default, versus 70.8% in Q3 2010, according to a Coface report.

“It may indicate that while enterprises are more confident in the future economy, they are also more willing to tolerate longer payment from their buyers in order to increase their competitive advantage,” said Richard Burton, Deputy CEO, Asia Pacific for Coface. However, the survey also indicates that corporates experiencing the longer overdue payments tend to have a higher amount of default. “Corporations need then to pay attention on the impact of longer overdue.” said Burton

Uncertainties for future growth despite improved confidence
Hong Kong enterprises have shown improved confidence in the market and their buyers. The survey reviews that a majority of local enterprises (85.7%) believe there will not be more delay payments in the next six months, which is 2.6% higher than Q3 2010 (83.5%). Only 5.8% of respondents reported that their company would tighten the credit terms more severely in the next six months, which is 19.6% lower than the previous quarter (7.2%). These figures indicated that overall confidence in buyers’ payment ability has improved progressively.

Added to the gradually improving payment performance throughout the past few quarters, the total value of Hong Kong's exports showed significant year-to-year increase of 24.9% in February. However, there are uncertainties for the future growth. ”The geopolitical tensions in the Middle East causing increase of oil price, and the possible repercussions from the earthquake in Japan, which may drag down Hong Kong export growth in the coming few months, are issues that we have to look into.” said Burton.

“The surging inflation rate, soaring of raw materials cost and the pressure of RMB appreciation are other factors which put pressure on many companies and may have negative impacts on Hong Kong manufacturers and exporters. Therefore, local businesses are strongly recommended to closely monitor buyer’s payment record and financial situation in order to avoid unnecessary harm to company’s profitability and cash flow.” said Burton.

Deteriorating payment performance in the textile industry may stabilise in 2011
Payment performance continues to deteriorate in the textile industry. Default payment increased by 10.3% in Q4 2010, significantly up from 6.2% the previous quarter, and 4.3% in Q2 2010.

“Though our survey reported a continual increase in default payment for the industry in 2010, I think the situation will stabilize this year. Last year, the price of cotton surged due to limited supply and the textile industry was greatly affected. However, the rising trend of the cotton price slowed down recently, and the mainland government has announced new policy in early April to encourage increased domestic production of cotton and to stabilize its price. These may have positive impact for cotton-related industries.” said Richard Burton, Deputy CEO, Asia Pacific for Coface.

The survey of 742 Hong Kong companies was conducted from October to December 2010, by Coface Greater China Services – the business information and credit management services subsidiary of Coface. The survey considered trends in late payments and defaults, as well as credit terms for manufacturing, trading services and contracting companies.