Payment practices report
June 2020: business confidence remains positive despite economic challenges
The Payment Practices Barometer survey was completed by Indonesian businesses during March 2020. After reporting its first cases of coronavirus in early March, Indonesia applied a policy of partial lockdown focusing containment measures on specific affected areas across the archipelago.
Jetse van Hee,
Country Manager for Indonesia commented on the report
The global economic downturn triggered by the coronavirus pandemic has severely affected Indonesia’s economic performance and clouded the country’s growth outlook for the coming months. This is because growth of household consumption, a key driver of Indonesia´s economic expansion over recent years, is expected to deteriorate sharply compared to one year ago and exports are forecast to decrease significantly due to the sharp decline of global demand.
The severe impact on the tourism sector and the anticipated contraction of investments with ongoing disruptions of major infrastructure projects add to the picture. Against this background, predictions over the economic outlook for Indonesia appear to be highly uncertain.
Although the full impact of the coronavirus outbreak on the economy of Indonesia is still to be assessed, the country’s trade links with China and the dependence of its exports on commodities has exposed Indonesia to downside risks to its growth and insolvency levels this year.
Key takeaways from the report
As a direct consequence of financial stresses and indebtedness, much arising out of the COVID-19 pandemic, the majority of respondents to our survey in Indonesia predict an increased dependence on bank finance. Many businesses also revealed that they would revert to requests for payments in cash and would strengthen their internal credit control procedures, including outsourcing debt collection, in response to a heightened risk of payment default.
This risk-averse tendency can also be found in other results of the survey such as the fact that Indonesia offers the shortest average payment terms of all of the countries surveyed in Asia.
This may have been prompted by difficulties in collecting on invoices, with a sizable proportion of respondents reporting spending as much as 50% of the value of B2B invoices on collection.
Businesses that have struggled to manage cash flow in this way may benefit from avoiding collection challenges upfront by seeking robust payment guarantees. These can range from cash payments, to bank guarantees and other credit management processes such as credit insurance.