Corporate payment conditions in Asia might deteriorate this year amid trade woes after most firms experienced payment delays last year, French credit insurer Coface SA said on Tuesday last week.
Sixty-three percent of companies said they experienced payment delays last year, with the length of delays being 88 days on average, compared with 84 days a year earlier, Coface said, citing its annual corporate payment survey.
The survey covered more than 3,000 companies in Taiwan, Australia, China, Hong Kong, India, Japan, Malaysia, Singapore and Thailand.
“This year will prove more challenging for companies in the Asia-Pacific, as weaker growth coupled with an increase in cash flow risks could trigger high defaults,” Carlos Casanova, Coface’s economist for the region, said in a statement.
More than 50 percent of companies in Taiwan, Hong Kong, China, Japan and Singapore said they do not expect economic growth to improve this year, with their economies expected to be negatively affected by the US-China trade dispute.
Average payment terms increased to 69 days last year, up from 64 days in 2017, it said.
The length of payment delays was highest in China, Malaysia and Singapore, Coface said.
The average term was lowest in Hong Kong and Japan, it said.
Average payment delays were highest in the energy, construction and information/communication technology sectors, with more than 20 percent of companies from those sectors offering payment terms of 120 days or longer, Coface said.
Longer payment delays last year could be largely attributed to financial difficulties among customers, it said, adding that the difficulties were a result of fierce competition, which weighed on margins.
Tighter monetary policies also contributed to a lack of financial resources, it said.
Despite weaker sentiment, 53 percent of companies said that they do not use credit management tools to mitigate risks, the survey showed.
Eighty percent of ultra-long payment delays are never paid, Coface said.
When they constitute more than 2 percent of annual turnover, a company’s cash flow is at risk, it said.
Coface defines ultra-long payment delays as those exceeding 180 days.
Companies that face delays to ultra-long payments exceeding 2 percent of their annual turnover are concentrated in China, Australia and Malaysia, the survey showed.
They are involved in the region’s construction, energy and transport sectors, Coface said.
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