Asia faces insolvency risk amid COVID-19 fallout

Asian businesses are tightening their credit management processes in a bid to minimise bad debt risks as global COVID-19 containment measures continue to affect supply chains and trade - revealed findings from a survey conducted by credit insurer Atradius.

Responses to the ‘2020 Atradius Payment Practices Barometer’ (PPB) survey in Asia suggest that resulting delays in payments are largely being financed by suppliers as the use of trade credit in most markets surveyed have increased along with payment delays.

The PPB survey for Asia was conducted in China, Hong Kong, India, Indonesia, Singapore, Taiwan, and the United Arab Emirates. It was carried out in March 2020 – which was a relatively early stage in the COVID-19 pandemic and ensuing economic crisis.

“With the global economy dipping into recession, payment default risks are growing. We expect bad debts and insolvencies to continue rising into 2021. Suppliers need to manage reduced demand and financial stress. Minimising these burdens with thorough credit worthiness assessments and ensuring adequate financial sustainability will be key to survival for many of these businesses,” said Atradius chief market officer Andreas Tesch.

Compared to last year’s survey, credit-based sales grew by an average of 14% in four of the markets while at the same time the percentage of overdue invoices increased by an average of 56%. In India and Singapore where credit sales fell, overdue invoices still surged by 69% and 29% respectively. According to the survey, India’s decline in credit use might even be the result of its dramatic rise in overdues.

Although the PPB survey indicates a varied approach to trade credit across the region with marked differences between markets, it also reveals a consistent commitment to credit control. Without exception, businesses in every market expressed their dedication to credit management processes with many seeking to increase their focus on minimising risk.

Despite the gloomy outlook, most of the businesses surveyed across Asia conveyed optimism that government support or bank finance would be available to help support their industries and the economy.

Source: Asia Insurance Review