While there is now significant market growth in Singapore particularly and in other Asian markets, it is clear that the after-effects of the global financial crisis are still shaping the way businesses operate.
There’s no denying that companies in Asia have not only fared better than most during the recent global crisis but have also been the first to show real signs of strong growth. However, results from a new independent study commissioned by Atradius and carried out by CFO Innovation Asia, suggests that the problem of late payment remains a growing problem for Singapore businesses.
The research, which was completed at the end of April 2011, gives a clear indication that companies in Singapore are becoming increasingly concerned about the growing trend towards delayed payments, with 45% saying that they are now more anxious about late payments than they were before the global crisis.
It appears these concerns are justified as there are also signs that payment delays, in general, are increasing with 75% of Singapore businesses surveyed reporting that payments are made outside the agreed payment terms. Requests for extended payment terms are also escalating, with just under half (49%) saying they had experienced an increase during the past 12 months.
Late payments can penalise your businesses by costing you money to explore and secure other finance streams such as potentially expensive bank finance, loans or other options, which enable your cash flow to be maintained.
Clearly, businesses are adopting different 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 Singapore companies are reducing exposure to those customers judged to be less creditworthy, compared to the Asian average of 80%.
While, arguably, you may consider this a sound approach, it’s only when you look at the quality of information used to make these decisions that questions of its accuracy and reliability arise. Poor information can undermine 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 danger that by adopting these strategies, companies could limit growth, lose market share and become uncompetitive.
The fact less Singapore companies are reducing credit exposure than some of their neighbours could perhaps be linked to them also recording the third highest familiarity with trade credit insurance at 51%, behind Hong Kong and China.
Outside these top three countries, lack of familiarity 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 granting conditions on customers.
Credit insurance can remove the worry of non-payment
Naturally, payment practices are of specific interest to Atradius since we provide credit insurance to protect businesses against the risk of non-payment when trading on credit terms. Credit insurance policies may typically cover up to 90% of the value of outstanding receivables, giving a boost to those wanting to secure payment of their accounts receivable on time, and in full.
To illustrate just how widely used credit insurance is globally and what the scale of our involvement Atradius, with annual revenues in excess of USD 2.2 billion, has been providing trade credit insurance cover for over 85 years across the world and has more than 50 years of buyer underwriting experience in Asia. Today, it has offices in Singapore, China, Japan, India and Hong Kong with cooperation agreements in several other Asian Markets.
Credit insurance is enables you to trade comfortably on credit terms with your customers who have an insurable credit limit in place.
This means you can more easily offer credit terms to maintain your competitive edge and to avoid the ‘up-front’ payment burden. Atradius stores information files on 60 million companies worldwide, so we can help you avoid risk and ensure your credit decisions are based on reliable and robust data.
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