Survey findings for Indonesia

Use of trade credit as a source of short-term finance remains low compared to regional average

Indonesia is Southeast Asia’s largest economy. Like all economies around the world, it faces the disruptive impact caused by the coronavirus pandemic to international trade, as well as the strain on domestic demand arising from lockdowns. Amid these economic stressors, use of trade credit as a source of short-term finance in B2B trade increased modestly. An average of 49% of the total value of B2B sales were transacted on credit, up from 47% last year), and 51% on a cash basis (down from 53% one year ago). Despite the growth in the use of trade credit, this is still significantly below the 56% average for Asia.

These small increases in the adoption of B2B trade credit may signify the start of a new trend. However, the modest nature of the uptick and the fact that Indonesia has largely been the most reluctant of the region’s economies to offer trade credit or adopt risk suggests the status quo is likely to persist.

Payment duration in Indonesia

d = average days Sample: companies interviewed (active in domestic and foreign markets) Source: Atradius Payment Practices Barometer – June 2020

Extended payment terms back up short-term finance role of B2B trade credit

Indonesia grants the shortest average payment terms of all of the countries surveyed in Asia. However, the country’s 37-day average is three days longer than a year ago, which reflects trends indicating the use of trade credit as a source of finance. That said it is still six days shorter than the regional aver days). Indonesian SMEs and enterprises in the se r report far longer average payment terms (both 45 days). Respondents from both SMEs and enterprises in the wholesale trade sector, who appeared to be the most inclined to grant trade credit to their B2B customers, call for shorter than average payment terms, both at 30 days from invoicing. 73% of respondents in Indonesia requested payment from B2B customers within 30 days of the invoice date, 15% in the range from 31 to 90 days and 12% of respondents reported having set payment terms of 90 days or more from invoicing.

Cash payments still more common in B2B trade than Asia average

Cash payments still more common in B2B trade than Asia average

Payments in cash, cash equivalents and on terms other than trade credit are the payment methods most often requested by survey respondents in Indonesia (75%). This is significantly higher than the regional average of 63%. This holds particularly true for large enterprises and in the manufacturing sector. Respondents who opted for selling on credit terms most often adjust granted payment terms (73% of Indonesian respondents, compared to a 60% regional average). This is most often the case for SMEs and businesses in the services sector.

Over 60% of survey respondents in Indonesia (67%) reported using two main techniques for managing customer credit risk: discounts for early payment and payment guarantees for credit sales. A similar proportion reported sending dunning letters (outstanding invoice remainders). In line with the average for Asia, Indonesian respondents display a strong focus on managing payment default risks. Exceptions to this include many small businesses and enterprises in the distribution sector that reported a lower than average use of credit management tools or techniques to safeguard cash flow and business profitability.

67%

of Indonesian respondents report ed using two main techniques for managing customer credit risk: discounts for early payment and payment guarantees for credit sales.

Atradius Payment Practices Barometer – June 2020

Indonesian businesses hit by significant increase in late payments

Compared to one year ago, Indonesian respondents have working capital tied up in overdue receivables for a longer period (57 days from the invoice date, up from 52 days last year). In particular, respondents reported that they had the most difficulty in collecting outstanding debts from B2B customers in the chemicals, ICT/electronics and food & beverage industries.

For most Indonesian respondents (60%, lower than the 49% regional average) late payment from B2B customers is chiefly due to liquidity shortages. This was most often reported by large enterprises and the manufacturing sector. For 57% of Indonesian respondents (regional average: 49%) the most frequent reason for B2B customers’ late payment is the use of outstanding invoices as a form of financing.

This was most frequently reported by SMEs and the distribution sector. A sizeable proportion of late payments from B2B customers is caused by inefficiencies in their internal payment processes (53% of respondents). To protect their business from credit losses arising from payment defaults, Indonesian respondents put in place measures aimed at strengthening their own credit control procedures. This included the increase in resources, costs and time to chase unpaid invoices (41% of respondents). As survey responses highlight, these latter amount to 50% of the total value of B2B invoices issued by respondents.

Indonesian businesses express concern over the fallout of the pandemic on the domestic economy, and anticipate a deterioration of their B2B customers’ payment behaviour over the coming months.

This is 16 percentage points higher than last year, and below the current average of 52% for the region overall. With 15% of invoices extending past 90 days overdue, respondents in Indonesia experience a rate of very late payments consistent with the regional average. This is reflected in the sizeable percentage of write-offs of uncollectable receivables, amounting to 4% of the total value of B2B invoices (twice as much as last year, and above the 3% current regional average). This suggests lower efficiency in collection of outstanding debts than one year ago, which is also comparable to the average rate for the region. When asked to indicate how long it takes, on average, to get paid after having initiated a PKPU proceeding for customer payment default, 40% said that it took on average 6 months to 1 year from the start of the proceeding to get paid, while for 38% the proceeding was completed earlier within 6 months from its start.

Indonesian businesses express concern over the fallout of the pandemic on the domestic economy, and anticipate a deterioration of their B2B customers’ payment behaviour over the coming months. In response to this, as findings of our survey reveal, businesses plan on further strengthening their internal credit control procedures, confirming great attention to a strategic approach to credit management as the most effective way to protect the business from losses particularly, but not only, during an economic downturn. This protective stance may explain why their business confidence remains positive despite economic challenges. Jetse van Hee, Country Manager for Indonesia

Majority of businesses in Indonesia expect increased dependence on bank finance

3 in 5 survey respondents in Indonesia are of the opinion that the fallout of the pandemic on the domestic economy will increase their industry’s indebtedness, triggering an increased dependence on bank finance. However, on the positive side, nearly 70% of respondents believe that banks will continue to lend financial support to businesses, despite the uncertainties brought about in the economy by the virus outbreak. 53% of respondents, however, said they will continue to use distributor financing as a means to finance their B2B trade operations.

Against this backdrop and amid measures undertaken to support Indonesia’s economy during the pandemic, a surprisingly high percentage of respondents (85%) are convinced that the business performance of their industry, in terms of sales and profits, will remain unchanged or even improve over the coming months.

The percentage of write-offs of uncollectable re ceivables, amounting to 4% of the total value of B2B invoices (twice as much as last year, and above the 3% current regional average).

Atradius Payment Practices Barometer – June 2020

Uncollectable B2B receivables in Indonesia

(% of total value of B2B receivables)

Sample: companies interviewed (active in domestic and foreign markets) Source: Atradius Payment Practices Barometer – June 2020

Due to the current trade challenges experienced at a global level, however, more Indonesian respondents (31%) anticipate a deterioration of their B2B customers’ payment practices, (negatively affecting their DSO), than an improvement (27%). The remaining 42% anticipate no change. In response, the majority of Indonesian respondents plan on strengthening their internal credit control procedures (83%), and on outsourcing debt collection to legal offices or attorneys (70%). Respondents also anticipate increasing requests for payments in cash, cash equivalents and on terms other than trade credit, as well as the adjustment of payment terms as a key element of their credit policies.

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