Overview of payment practices
One quarter of B2B invoices are overdue
Taiwanese respondents from the chemicals industry reported an average of 71% of the total value of B2B invoices paid on time, 25% extending past due, and 4% written off as uncollectable. Respondents reported they had had the most difficulty in collecting outstanding B2B debt in both their industry and the agriculture industry. For half of the respondents, B2B customers delay payments due to inefficiencies of their internal payment process.
On average, it takes Taiwanese respondents from the chemicals sector two weeks beyond the due date to cash in overdue invoices (faster than 22-day country average). As a reflection of respondents’ efficiency in collecting long-term outstanding invoices of high value, 61% of respondents reported DSO figures up to 30 days, 22% up to 90 days and 18% of 90 days or more.
Upswing in long-term overdue B2B invoices expected over the coming months
In the Taiwanese chemicals industry, significantly fewer respondents (10%) expect customer credit risk to improve than to worsen (32%) over the coming year. In particular, a deterioration of B2B customers’ payment practices are expected to cause an upswing in overdue invoices extending 90 days or more past due.
To strengthen credit control over the coming months, and protect cash flow and the investment capacity of the business, Taiwanese respondents from the chemicals industry plan to strengthen their internal debt collection procedures. These include putting in place measures aimed at avoiding risk concentration (27% of respondents) and offering discounts for early payment (25%).
Nearly 40% of respondents believe that dependence on bank finance will increase over the coming months due to the increased indebtedness of the chemicals industry. Over half of the respondents, however, expect banks to provide additional financial support to alleviate temporary cash flow issues. Against this background, 60% of Taiwanese respondents are of the opinion that the industry business performance (sales and profits) will improve over the next 12 months..
ICT / electronics
Average late payments in ICT/electronics above the country average
Late payments in the Taiwanese ICT/electronics sector average 44% of the total value of the B2B invoices issued (country average: 40%). Long-term outstanding receivables (those more than 90 days overdue) average 15% of overdue payments (in line with the country average). On average, overdue invoices are turned into cash within 20 days of the due date (in line with the country average).
The proportion of receivables written off as uncollectable averages 1% of the total value of B2B invoices, in line with the country average. 45% of Taiwanese respondents in the ICT / electronics industry reported DSO up to 30 days, 43% up to 60 days and 12% of 90 days or more. Based on survey findings, B2B customers in the Taiwanese ICT/electronics industry pay invoices late most often due to inefficiencies in their internal payment processes (46% of respondents) while for 39% of respondents late payments from B2B customers are attributable to liquidity shortages.
in ICT/electronics industry in Taiwan use self-insurance.
Atradius Payment Practices Barometer – June 2020
Self-insurance is the most commonly used credit management technique
Most of the respondents in the Taiwanese ICT/electronics industry (65%) reported that they retain and manage customer credit risk internally (self-insurance), and often ask for guarantees of payment when selling on credit to their B2B customers.
This emphasis on internal credit control processes can also be seen in the measures put in place to avoid concentrating payment default risks in a single buyer (as stated by 60% of respondents). Over half of the respondents plan on strengthening their internal debt collection processes in the coming months.
Payment habits of B2B customers in the industry expected to remain stable
66% of the respondents in the Taiwanese ICT/electronics industry believe B2B payment practices will not change over the next 12 months. 27% anticipate a deterioration in payment behaviour, causing a significant lengthening of DSO. Only 7% expect to see an improvement. More than one quarter of industry respondents (27%) plan to start using securitisation over the next 12 months.
As stated by 41% of the respondents, businesses in the industry will become more dependent on bank finance due to an increase of the indebtedness of the industry over the coming months. However, nearly half of the respondents (49%) believe that banks will continue to support businesses over the same period to alleviate pressure on cash flow. When asked about the outlook for the ICT/electronics industry, 42% of Taiwanese respondents said they expect business performance (sales and profits) to remain stable, while 35% expect it to improve over the next 12 months.
DSO in the industry is twice as long as the country average
Based on survey findings, 70% of the total value of the B2B invoices issued by respondents in the Taiwanese machines industry was settled within or at the due date, 29% was overdue and 3% was written off as uncollectable. On average, 14% of overdue payments were reported to be still outstanding more than 90 days overdue.
Of note, 43% of respondents in the industry reported DSO up to 30 days, and over half of respondents of more than 90 days, resulting in an average of 100 days. According to respondents in the Taiwanese machines industry, late payment from B2B customers is most often attributable to disputes over the quality of goods and services provided (65%), or to liquidity shortages of the customer (45%).
Cash sales still very common despite increased use of trade credit
Although trade credit is increasingly used in Taiwan, cash is commonly used by B2B trade in the machines sector (85%). To minimise customer credit risks, respondents most often adjust credit payment terms (80%), avoid risk concentration through the reduction of the reliance on a single buyer (75%), or request letters of credit (75%).
To ensure adequate levels of cash flow, many respondents in the Taiwanese machines industry reported needing to increase resources, costs and time to chase unpaid invoices, delaying payments to suppliers, or pursuing additional financing from external sources (25% each).
Payment practices in the industry expected to remain stable
Most Taiwanese respondents anticipate that their B2B customers’ payment practices will not change over the coming months. However, 20% of respondents anticipate a deterioration and with that an increase in long-term overdue invoices and write-offs. When asked about the outlook for the machines industry in Taiwan, most respondents (55%) said they expected business performance (sales and profits) to improve over the coming months.
To protect their businesses from the risk of non-payment most respondents plan to minimise risk concentration, and to increase requests for letters of credit (35% of respondents each). 7 in 10 respondents believe the levels of indebtedness of the Taiwanese machines industry will not change over the next 12 months, and likewise, dependence on bank finance is predicted to remain unchanged over the same period.