Payment practices report
June 2020: businesses turn focus to credit management as recession looms
The Atradius Payment Practices Barometer is an annual review of business-to-business payment behaviour. This year’s survey explores a range of topics including payment terms, payment delays, credit sales, and DSO (Days Sales Outstanding), results of which provide a good indication of outlook for Hong Kong businesses.
Vincent Ku, Country Manager for Atradius in Hong Kong and Taiwan
Against this backdrop dominated by a high degree of uncertainty over the economic recovery, Hong Kong businesses strengthened their credit risk management processes in order to better handle the risk of liquidity constraints from customers.
Amid concerns over a forthcoming deterioration of payment practices in B2B trade, as highlighted in our survey, Hong Kong businesses confirmed their interest in credit insurance as the most comprehensive tool for safe growth while pursuing the improvement in business performance they expect to reach over the next 12 months.
The survey was completed by Hong Kong businesses in March 2020 during a period of economic uncertainty framed by months of social unrest, disruptions to global trade caused in part by the US-China trade war and the coronavirus. The World Health Organisation (WHO) characterised COVID-19 as a pandemic on March 11.
However, recognising its relative proximity to the location of the virus outbreak in Wuhan, China, Hong Kong responded quickly, and put measures such as social distancing and travel restrictions in place as early as the end of January.
Key takeaways from the report
Despite an economy heading towards a severe downturn or recession, this year’s survey revealed that an increased percentage of total B2B sales in Hong Kong were made on credit. Although modest, the increased used of trade credit may point towards a competitive economy responding to the squeeze of the downturn.
Against this backdrop dominated by a high degree of uncertainty over the economic recovery, Hong Kong businesses strengthened their credit risk management processes in order to better handle the risk of liquidity constraints. Amid concerns over a further deterioration of payment practices in B2B trade, as revealed in our survey, Hong Kong businesses have increasingly adopted or expressed an interest in credit insurance as the most comprehensive tool for securing accounts receivable while promoting growth.
Indeed, as many as half of the businesses surveyed in several industries expressed optimism and said they expected to see some improvement in business performance over the next 12 months.
Amid such potentially turbulent economic conditions, businesses may need to act quickly and respond to developments as they unfold. To mitigate risk, businesses would benefit from a coherent credit management strategy with regular reviews and payment guarantee protections.