Payment delays are a growing concern for HK businesses

While there is now significant market growth, particularly in Hong Kong and other Asian markets, it is clear that the after effects of the global financial cri¬sis are still shaping the way businesses operate.

There’s no denying that businesses in Asia have fared better than most during the recent global crisis and they have also been the first to show real signs of strong growth. However, results from a new independent study, com¬missioned by Atradius and carried out by CFO Innovation Asia, suggests that the problem of late payment is a growing issue for Hong Kong businesses.

The research, which was completed at the end of April, gives a clear indication that com¬panies in Hong Kong are becoming increasing¬ly concerned about the growing trend towards delayed payments, with 54% saying that they are now more anxious about late payments than before the global crisis.

It appears that these concerns are justified, as there are also signs that payment delays, in general, are increasing with almost half (48%) of the Hong Kong businesses surveyed report¬ing that payments are now delayed by more than 15 days and requests for extended pay¬ment terms are growing.

Late payments can penalise your businesses further, by costing you money to explore and secure other finance streams, such as poten¬tially expensive bank finance, loans and other options, which enable your cash flow to be maintained. Clearly, businesses are adopting strategies to address the late payment issue, but some of the approaches identified in the research also raise some cause for concern.

Restricting customer credit could put Asian business at risk

We found that just under half (48%) of Hong Kong companies are reducing exposure to cus¬tomers that are judged to be less creditworthy, compared to the Asian average of 80%.

While, arguably, you may regard this as this as a sound approach, it’s only when you look at the information on which many of these deci¬sions are made that questions on its accuracy and quality become apparent. This can under¬mine the validity of the original decision.

However, when you combine this result with another finding, which suggests that businesses are insisting on advance payment, then there is a clear risk that by adopting these strategies, companies could limit growth, lose market share and become uncompetitive.

The fact that the Hong Kong figure is so sig¬nificantly lower than the overall average, could perhaps be linked to the fact that the country also has the highest familiarity with trade credit insurance of all those surveyed, which at 60%, is 11% higher than the average.

Outside of Hong Kong, this lack of familiar¬ity with trade credit insurance could indicate a key reason why some Asian businesses are considering potentially restrictive strategies of up-front payments and imposing tighter credit conditions on customers.

Credit insurance can remove the worry of non-payment

Naturally, payment practices are of specific in¬terest to Atradius as we provide credit insur¬ance to protect businesses against the risk of payment default when trading on credit terms in domestic and international markets. Al¬though credit insurance policies typically cover up to 90% of the value of the outstanding re¬ceivables, it is clearly in everyone’s interests to secure payments on time and in full.

To give an indication of just how widely credit insurance is used on a global basis and the scale of our involvement, Atradius has been providing credit insurance for over 85 years and has annual revenues of more than EUR 1.5 billion (USD 2.2 billion). In Asia alone, we have over 50 years of experience in provid¬ing credit insurance expertise and Hong Kong has been our regional headquarters for Asia since January 2007.

Credit insurance is designed to enable you to trade on credit with your customers where an agreed insurance credit limit is in place. This means that credit terms can be offered to maintain competitive appeal and avoid the ‘up-front’ payment obstacle. Also, we have access to financial information on 60 million companies worldwide, which means we can help steer you away from risk and ensure your credit decisions are made for the right reasons and based on strong, robust data.
 

Benoit Ganzmann, Senior underwriter, Atradius