Asia prepares for storm of insolvency due to Covid-19 pandemic

As the global recession escalates, Asian companies are tightening credit management processes to minimize the risk of bad debts. According to the latest Payment Practice Barometer for Asia, payment delays are largely financed by suppliers. In most of the countries surveyed, the use of trade credits increased, and payment delays increased with it.

Measures to limit the spread of COVID-19 worldwide affect national and international supply chains and trade. Compared to last year, in four of the markets studied: China, Hong Kong, Indonesia and Taiwan, sales on credit increased by an average of 14 percent, while the value of overdue invoices increased by 56 percent. In two countries: India and Singapore, sales on credit decreased, but the value of overdue invoices increased by an average of 49 percent. The decline in loan utilization in India may result from a significant increase in the number of overdue receivables.

Arkadiusz Taraszkiewicz, regional director for risk assessment at Atradius, noted that in a situation where the global economy is falling into recession, the risk of arrears in payments increases.

"We expect debt and insolvency to continue to grow in 2021. Suppliers must manage reduced demand and financial risk. Minimizing these burdens by carefully assessing creditworthiness and ensuring adequate financial stability will be the key to survival for many businesses," Taraszkiewicz added.

Although the Payment Practice Barometer carried out by Atradius on Asian markets shows a varied approach to trade credit across the region with clear differences between countries, it also reveals a consistent commitment to credit risk control. Without exception, companies in each country have emphasized their commitment to credit management processes, and many have increased their focus on risk minimization.

(WBJ)