Payment deterioration a major APAC trend, even before COVID

Unpaid invoices trends are likely being exacerbated by the pandemic.

The full economic impact of the coronavirus pandemic may not be understood for years to come. However, one very apparent effect of the crisis was a sudden cash flow crunch experienced by businesses of all sizes and industries. With revenue sources dried up, many companies were forced to miss rent or trade partner payments.

While business conditions have improved for some, sizable challenges still exist. This is particularly the case for importing and exporting businesses. Border restrictions and plunging demand put many operations in a vice; but the real concern is payment delay deterioration.

Late payments was already a major trend in international trade before COVID-19 struck, however. Data collected by Coface in 2019 found 65% of surveyed businesses in the Asia-Pacific region (APAC) said they experienced a late payment, an increase over the 63% that said the same in 2018.

Let's take a closer look at payment deterioration in APAC and what effects the pandemic might have on the trend.

Payment deterioration a trend across APAC, economic sectors

Though COVID-19 likely resulted in a crush of late or unpaid payments, the wave of payment deterioration was already growing in APAC. As mentioned, the region saw an increase of companies reporting late payments from 2018 to 2019 — from 63% to 65%. Overall, payment delays averaged 85 days, which was 10 days longer than the 76-day average seen in 2015.

Of delayed payments observed in 2019:

  • 59% were late by fewer than 60 days
  • 16% were late by 60 to 90 days
  • 6% were late by 90 to 120 days
  • 19% were late by more than 120 days.

China faced the highest share of payments late by more than 120 days (37%), while India saw only 1% of late payments more than three months in arrears. Delays were also longest in China, averaging 96 days; Malaysia (84 days), Singapore (71 days) and Thailand (69%) followed in the longest delays.

In terms of delays by, in 2019 late payments averaged:

  • 88 days in construction
  • 86 days in ICT
  • 83 days in energy
  • 82 days in transportation
  • 73 days in pharmaceuticals
  • 70 days in retail
  • 63 days in agri-food
  • 61 days in textiles
  • 60 days in automobiles

ICT (28%), energy (26%) and construction (24%) had the highest share of payments delayed more than 120 days.

Companies will need to adapt, Coface solutions can help

As the end of 2020 approaches, much of the country is still struggling with the virus, resulting in sustained downward pressure across the global economy. This, combined with payment deterioration, can squeeze APAC companies that are built on international trade.

Business will need operational flexibility in order to adjust to changes wrought by the pandemic. One of those considerations might be longer trading terms. Negotiating more lenient payment terms may be able to help trading partners strike a mutually beneficial agreement.

By country, 2019 payment terms averaged:

  • 91 days in Japan
  • 86 days in China
  • 72 days in Taiwan
  • 64 days in Malaysia
  • 63 days in Hong Kong
  • 54 days in Singapore
  • 53 days in Thailand
  • 42 days in India
  • 36 days in Australia

In any case, payment terms — or the length of time between a purchase and a payment due date — were already on the rise in Asia-Pacific in 2019. Events 2020 may push that trend further as longer payment terms allows for greater cash flow flexibility.

As any business owner would know, the seas of international trade are particularly choppy amid COVID-19. Even once the pandemic abates, business conditions will be difficult to navigate. With a trusted partner for trade credit insurance (TCI) and other solutions at your side, your business can benefit from resources to help power your operations through uncertainty. Protect your organisation from the risks of unpaid invoices with Coface's help. You can also leverage our business information reports for detailed credit analyses of trading partners so you can always make the best decision for your business.
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