Corporate payment terms in Taiwan and other Asian economies last year showed initial signs of a recovery, but the blow from the COVID-19 pandemic this year is expected to wipe out any improvement, French credit insurer Coface SA said yesterday.
Average payment terms last year improved, shortening to 67 days from 69 days a year earlier, Coface said.
Although 65 percent of companies reported experiencing payment delays, slightly up from 63 percent, the average payment duration dropped from 88 to 85 days, it added.
Coface attributed the improvement to supply chain realignment and an additional liquidity injection from the US Federal Reserve.
Japan has the longest payment terms at 91 days, followed by China at 86 days and Taiwan at 72 days, while all other Asian economies had payment terms below the average, Coface said.
Payment delays were longest in China at 96 days, followed by Malaysia at 84 days and Singapore at 71 days, it said, adding that payment delays in Thailand gained seven days to 69, and picked up two days to 67 in both Taiwan and Malaysia.
The majority of respondents, 48 percent, linked the increase in payment delays to customers’ financial difficulties, which were mainly due to a lack of financial resources and to fierce competition that is squeezing margins, it said.
Average payment terms were longest in the energy, information and communications technology (ICT), and construction sectors, where more than 20 percent of companies offered payment terms of 120 days or longer, it said.
The three sectors also recorded the longest payment delays, with 24 percent of respondents in energy, 28 percent in ICT and 26 percent in construction, reporting payment delays of 120 days or longer.
Ultra-long payments delays (ULPDs) — longer than 180 days — highlight a risk of cash flow deterioration in certain regions and sectors, Coface said.
“In Coface’s experience, 80 percent of ultra-long payment delays across the world are never paid,” it said.
Asian companies that were experiencing ULPDs in excess of 2 percent of their annual turnover last year dropped to 31 percent from 38 percent in 2018, it said.
However, the number of companies reporting ULPDs in excess of 10 percent of their annual turnover remained unchanged at 13 percent.
The credit improvement might not be sustained this year as the virus outbreak has darkened the landscape and many Asian economies might experience the worst contractions since the Asian financial crisis of 1997 and 1998, Coface said.
The credit company expects economic growth in Asia, excluding China, to slow to 0.3 percent this year, compared with a 4.6 percent increase last year, it said, adding that a recovery might not happen until next year.
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