Survey findings for Taiwan
Trade credit plays a key role in Taiwanese export B2B transactions
Respondents to the Atradius Payment Practices Barometer survey in Taiwan made an average of 54% of the total value of their sales to B2B customers on credit (up from 43% last year), and 46% on a cash basis (down from 57% one year ago). These are consistent with the averages for Asia (56% sales on credit and 44% on a cash basis). The growth in credit-based B2B transactions recorded in Taiwan represents a significant change in the payments practices of an economy that had previously shown reluctance to employ trade credit.
Taiwan’s increasing use of trade credit could highly likely be a result of a perceived need to offer more competitive trading terms amid China-US tariff uncertainty and may additionally result from increased payment flexibility as businesses seek to negotiate the challenges affecting supply chains and trade arising from the coronavirus pandemic.
The move towards a greater use of trade credit is reflected in both Taiwan’s domestic and export markets. As revealed by survey findings, respondents in Taiwan transacted 47% of their B2B sales on credit on export markets (higher than the 40% average for Asia). This percentage is the highest across the countries surveyed in Asia. The remaining 53% of credit-based sales was made domestically (lower than the 61% average for Asia). Taiwan’s above average use of trade credit in export markets is likely to be a reflection of the country’s export-oriented economy, compared to other economies in the region.
Extended payment terms support Taiwan’s move towards a more liberal trade credit policy
The survey findings show that Taiwan now offers the second longest average payment terms of all of the countries surveyed in Asia (47 days), preceded only by the UAE (57 days). 43% of Taiwanese respondents requested payment from B2B customers within 30 days of the invoice date, 39% in the range from 31 to 90 days and 19% of respondents reported having set payment terms of 90 days or more from invoicing. The country’s 47-day average is two days longer than a year ago and four days longer than the regional average (43 days). Taiwanese medium-sized enterprises and large businesses in the wholesale trade sector report well above average payment terms (both 52 days). In contrast, retail/distribution and large sized companies in the manufacturing sector reported shorter than average terms, both at 41 days from invoicing.
When asked about the underlying criteria for setting payment terms, nearly half of respondents in Taiwan (49%), particularly medium sized enterprises and the wholesale trade sector, reported that they set payment terms in accordance with their company standards and internal business practices (regional average: 51%). 34% of businesses set payment terms that are consistent with industry standards (regional average: 36%).
Payment duration in Taiwan
d = average days Sample: companies interviewed (active in domestic and foreign markets) Source: Atradius Payment Practices Barometer – June 2020
Cash payments still more common in B2B trade than Asia average
Despite the increasing use of trade credit, cash payment is also still frequently used by many Taiwanese businesses in B2B trade (69% of respondents vs. 63% in Asia). In addition to selling on a cash basis, as many as 3 in 5 survey respondents reported using two main credit management techniques when selling on credit: avoidance of risk concentration through reduction of reliance on a single buyer and self-insurance. A similar proportion reported requesting a letter of credit or a guarantee of payment before selling on credit to B2B customers.
However, 46% of the mid-sized businesses in the manufacturing sector reported a lower than average use of credit management tools or techniques to safeguard cash flow and business profitability.
of Taiwan respondents reported insufficient availability of funds as the most frequent reason for B2B customers’ late payment.
Atradius Payment Practices Barometer – June 2020
Significant increase in late payments from B2B customers
Compared to last year, Taiwanese respondents have overdue working capital tied up in receivables for a longer period, as B2B customers settle overdue payments on average within three weeks beyond the due date. This means respondents could cash in overdue invoices at 68 days from the invoice date (compared to 59 days last year). Of note, the ICT/electronics industry had the most difficulty in collecting outstanding debts.
For many Taiwanese respondents (45% vs. a 50% country average) late payment from B2B customers is chiefly due to inefficiencies of the customers’ internal payment processes. This was most often reported by mid-sized enterprises and the wholesale sector. For 39% of Taiwanese respondents (vs. 49% in the region overall) insufficient availability of funds was the most frequent reason for customers’ late payment. 34% attributed payment delays to either the use by B2B customers of outstanding invoices as a form of financing, or to disputes over the quality of goods and services provided.
To protect their business from credit losses arising from customers’ payment default, Taiwanese respondents put in place measures aimed at strengthening their own credit control procedures. This included an increase in resources, costs and time to chase unpaid invoices, potentially adding pressure to cash flows. Based on survey responses, these latter amount to 40% of the total value of B2B invoices issued by respondents, a whopping 16 percentage points higher than last year, and below the current average of 52% for the region overall. In addition to the resources used to collect on unpaid invoices many businesses invested in a wide range of measures from financial instruments (mainly guarantees of payment and letters of credit) to retention of credit risk through self-insurance.
With 15% of invoices extending past 90 days overdue, Taiwanese respondents experience a rate of very late payments consistent with the regional average. In contrast, write-offs of uncollectable receivables amount to 1% (regional average: 3%), suggesting a better success rate in collection of outstanding debts in Taiwan than on average in the region.
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.
Uncollectable B2B receivables in Taiwan
(% of total value of B2B receivables)
Sample: companies interviewed (active in domestic and foreign markets) Source: Atradius Payment Practices Barometer – June 2020
Businesses in Taiwan plan on strengthening internal debt collection processes
Respondents in Taiwan plan on strengthening their internal credit control procedures going forward by means of more thorough internal debt collection processes (51%), and stronger avoidance of trade credit risk concentration by reducing reliance on a single buyer (25%). In addition, almost the same percentage of respondents plan on starting to use debt securitisation in each case.
When asked to express their opinion about the outlook for their B2B customers’ payment practices for the upcoming months, most respondents in Taiwan 66% anticipate no change. Only 8% of respondents expect an improvement, whereas 26% expect a deterioration, including an upswing in write-offs of uncollectable receivables. This is consistent with the survey finding that more respondents (37%) anticipate a downturn in the domestic economy in Taiwan than an improvement (32%) or for it to remain unchanged (30%) over the upcoming months.
The total value of overdue B2B invoices issued by Taiwan respondents is 16 percentage points higher than last year.
Atradius Payment Practices Barometer – June 2020
For 39% of respondents a worsening of the domestic economy would cause an increase in dependence on bank finance due their industry’s increased indebtedness. However, on the positive side, respondents in Taiwan believe that despite the uncertainties brought about in the economy by these challenging times, banks will continue to lend financial support to businesses. Against this background, many Taiwanese respondents stated that the business performance of their industry, in terms of sales and profits, will remain unchanged or improve over the next 12 months (40% in each case, however lower than the 60% regional average).