Overview of payment practices
Over half of B2B invoices are overdue
According to respondents from the Indonesian chemicals industry, 52% of the total value of B2B invoices is overdue and 6% is written off as uncollectable. Just under half (42%) is paid on time. Due to late payments from their B2B customers, over one quarter of the respondents needed to delay payment of invoices to their own suppliers. In terms of debt collection, respondents reported they had the most difficulty in collecting outstanding debt from B2B customers in their industry.
For most of the respondents (65% in each case), B2B customers pay invoices late due to liquidity shortages, or because they use outstanding invoices as a form of financing. Reflecting greater efficiency in collecting long-term outstanding invoices of high value, 69% of respondents reported DSO (Days Sales Outstanding) figures up to 30 days, 14% up to 90 days and 17% of 90 days or more. This results in a 45-day average DSO for the industry.
Cash or cash equivalents still the most preferred payment method in the industry
The majority of respondents from the Indonesian chemicals industry (76%) reported they most often request payment in cash, cash equivalents and on terms other than trade credit. When it comes to their trade credit policy, most respondents (71%) adjust credit terms according to changes in the economy and the level of customer credit risk.
Respondents that retained and managed customer credit risk internally through self-insurance (73%) reported they had to increase time, resources and costs to chase overdue invoices (39%), or strengthen their internal credit control procedures (31%) or outsource debt collection to a specialised agency (29%).
Businesses plan to strengthen credit control procedures over the coming months
Survey respondents in the chemicals industry differ in their opinions about the outlook for payment practices over the coming months. About 40% expect their customers’ payment practices to deteriorate and about the same percentage expect to see an improvement. Despite this uncertainty, most respondents told us that over the coming months they will be focused on strengthening credit control procedures to protect cash flow and the investment capacity of the business. This includes offering discounts for early payment of invoices (39%), increasing the use of dunning payment reminders and avoiding risk concentration through the reduction of reliance on a single buyer (33% in each case).
Nearly 7 in 10 respondents in the Indonesian chemicals industry believe that dependence on bank finance will increase over the coming months due to the increased indebtedness of the industry. The same percentage of respondents expect banks to keep on providing financial support to alleviate temporary cash flow shortages. Against this background, 86% of Indonesian respondents are of the opinion that the industry business performance (sales and profits) will improve over the coming months.
of Indonesian respondents in the chemicals industry said late payments from B2B customers are most often due to liquidity shortages
Atradius Payment Practices Barometer – June 2020
Liquidity shortages cause late payments in the paper industry
B2B customers in the Indonesian paper industry pay invoices late most often due to liquidity shortages (67% of survey respondents) while for 52% of respondents, late payments are attributable to B2B customers using outstanding invoices as a form of financing. Late payments in the Indonesian paper industry correspond to an average of 48% of the total value of the B2B invoices issued (country average: 40%). Long-term outstanding receivables (those more than 90 days overdue) average 8% of overdue payments (well below the 15% country average).
In terms of debt collection, respondents reported they had the most difficulty in collecting outstanding debt from B2B customers in both their industry and in the food & beverage industry. The proportion of receivables written off as uncollectable averages 2% of the total value of B2B invoices (country average: 4%). 66% of Indonesian respondents in the paper industry reported DSO up to 30 days, 21% up to 60 days and 13% of 90 days or more, resulting in a 41-day average (country average: 45 days).
Majority of Indonesian paper industry suppliers requests cash payments in B2B trade
As it was observed in the chemicals industry, the vast majority of respondents in the Indonesian paper industry (85%) ask their B2B customers to settle invoices in cash, cash equivalents or in terms other than trade credit. However, when a trade credit decision is made, respondents most often offer discounts for early payment, or adjust payment terms to reflect the creditworthiness of the customer.
To minimise customer credit risk, respondents in the Indonesian paper industry reported they often ask their B2B customers for guarantees of payment, or a letter of credit (as stated by 64% of respondents in each case). In addition, 60% of respondents reported putting measures in place to avoid concentrating risk in a single buyer.
Paper industry optimistic about future payment habits
As survey findings reveal, Indonesian respondents in the paper industry are optimistic about the future trend of their B2B customers’ payment habits. 40% of respondents expect no change and 36% foresee an improvement with a significant decrease in long-term outstanding invoices. However almost a quarter % of respondents anticipate a deterioration in payment practices (24%). However, in order to strengthen their credit control procedures in these challenging times, over half of the respondents (52%) reported they will more frequently offer B2B customers discounts for early payment of invoices, while a sizeable percentage of respondents (43%) plan on insuring receivables against the risk of customer payment default over the coming months.
Consistent with their optimistic view of about the improvement in B2B payment practices over the coming months, most Indonesian respondents in the paper industry (85%) believe that the business performance (sales and profits) of their industry will improve going forward. This will reduce businesses’ overall indebtedness (as stated by 41%) and consequently their dependence on bank loans. Despite this, 67% of the respondents are confident that banks will continue to support businesses over the same period to alleviate pressure on cash flow.
ICT / Electronics
Survey reveals 3 in 4 businesses affected by late payments caused by customer inefficiencies
According to survey findings, most of the respondents in the Indonesian ICT/electronics industry (75%) attribute late payments from B2B customers to inefficiencies of their internal payment process. For 64% of respondents, late payments were due to B2B customers using outstanding invoices as a form of financing. On average 49% of the total value of the B2B invoices issued in the industry remained unpaid when due (above the 40% country average). Long-term outstanding receivables (those more than 90 days overdue) average 16% of overdue payments. This in line with the country average.
The proportion of receivables written off as uncollectable averages 3% of the total value of B2B invoices issued in the industry, (country average: 4%). Respondents reported they had the most difficulty in collecting outstanding debt from B2B customers in their industry. When asked to indicate their average DSO, 58% of Indonesian respondents in the ICT/electronics reported DSO up to 30 days, 26% up to 60 days and 16% of 90 days or more, resulting into a 52-day average (above the 45 days country average).
ICT industry strengthens its internal credit control procedures
To minimise the impact of customer credit risk on their business, respondents in the Indonesian ICT/electronics industry focused on strengthening their credit control procedures through an increase in resources, costs and time to chase unpaid invoices and collect outstanding debts (as reported by 55% of respondents). To remain financially flexible and alleviate pressure on cash flow, many respondents pursued additional financing from external sources, or requested a bank overdraft extension (35% each).
In order to link the mitigation of customer credit risk with their trade credit policy decisions, most respondents in the Indonesian ICT/electronics industry (72%) reported that they frequently adjusted credit payment terms to reflect the credit quality of their customers. Moreover, when selling on credit, 70% of respondents said that they very frequently requested guarantees of payment for the goods and services purchased on credit terms from B2B customers.
Payment practices in the industry expected to remain unchanged over the coming months
Many Indonesian respondents in the ICT/electronics industry (41%) anticipate that their B2B customers’ payment practices will not change over the coming months. However, 36% of respondents anticipate a worsening and with that an increase in write-offs. In response, nearly half of the respondents plan on turning to self-insurance, while many respondents (35%) plan on increasing their trade debts securitisation.
Over the coming months, dependence on bank finance by the Indonesian ICT/electronics industry will increase (according to 57% of respondents) due to increased levels of indebtedness. However, over half of the respondents believe that banks will continue to give financial support to the industry over the coming months. It is highly likely that this optimistic view be the reason for the positive outlook for the Indonesia ICT/electronics industry, which emerges from survey respondents. Most of these latter (83%) said they expect sales and profits in the industry to improve. 32% believe the improvement will be significant.