Payment practices report
‘Atradius Payment Practices Barometer’ survey explores a range of topics including payment terms, payment delays, credit sales, and DSO (Days Sales Outstanding). The survey results provide a good indication of outlook for Taiwan businesses.
Country Manager for Atradius in Hong Kong and Taiwan comments on the report
Compared to other countries, Taiwan was extremely swift in putting in place measures to contain the spread of the COVID-19 virus. Therefore, Taiwan’s domestic economy appears to have suffered less than in other Asian countries. However, the impact of pandemic on its main export destinations is putting pressure on the external trade flows of Taiwan’s export-reliant economy.
In these challenging times, the risk of customer payment default will be ever greater as many respondents reported an increase in resources, costs and time to chase unpaid invoices, potentially adding pressure to cash flows. Protecting business from credit losses should always be on the top of a company’s agenda, big and small companies alike.
The survey was completed by Taiwanese businesses during March 2020. At this time the country was successfully containing local transmission of the coronavirus through a series of measures including testing and quarantines that started in December 2019.
However, despite such containment successes, Taiwan’s dependence on Chinese tourism and the intertwined nature of exports and supply chains between the two countries means the coronavirus outbreak has posed downside risks to the country’s growth this year.
Key takeaways from the report
This year’s survey shows a marked change in cash versus credit payment, as Taiwanese companies were more willing to extend credit to B2B customers to increase competitiveness. The coronavirus outbreak on top of the ongoing US-China trade tensions and the slowdown of China’s economy may explain why.
Whilst trade credit can increase the chances of winning sales and enhancing customer relationships, companies are more exposed to the risk of payment delays or non-payment that lead to an increased pressure on cash flow. Considering your cash flow is important, as the more you use trade credit the less money you have available to produce more products or pay running costs, and this may even influence the cost of, and access to, financing. Indeed, it took 9 days longer than last year for companies to cash in invoices.
With self-insurance as a primary tool used by the majority of respondents In Taiwan, companies reported an increase in time and costs spent on chasing payment delays involving as much as 40% of the total value of B2B invoices.
The pressure and resources spent on credit risk monitoring and debt recovery will be even greater as the impact of COVID19 pandemic continues to unfold. To mitigate risks effectively, companies should perform regular assessment of their credit management approach to ensure the tools adopted remain effective.