Survey findings for Hong Kong
Hong Kong ranks second in Asia for use of B2B credit
Credit sales comprise 57% of all B2B sales in the consumer durables, ICT/electronics and textiles/clothing industries in Hong Kong. And with a year-on-year contraction of just 5%, credit has largely maintained a high level of popularity despite economic challenges presented by the pandemic. Hong Kong ranks second across the economies surveyed in Asia for the use of credit, after the 59% average for Singapore. Its use of trade credit is higher than the 55% seen in both China and Taiwan and higher than the 54% average for Asia.
The proportion of credit sales in Hong Kong’s ICT/electronics industry is in line with that of peers in Asia, whereas the Hong Kong consumer
durables (61%) and textiles/clothing (66%) industries are higher than the regional averages across Asia (58% consumer durables and 57% textiles/clothing). Credit sales to domestic customers average 54% of the total value of sales (regional average: 56%) Credit sales to foreign customers average 46% (regional average: 44%). This percentage split does not vary significantly compared to last year. The proportion of credit sales in the consumer durables and ICT/electronics industries is equal to that of Hong Kong’s peers at regional level. Conversely, the textiles/clothing industry sells on credit far more often than its peer industry in Asia.
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Credit offered in a bid to retain customers
When we asked why they chose to trade on credit, over half of Hong Kong businesses (almost on par with their peers in Asia) told us they were encouraging repeat business with established customers. 35% told us they accepted credit requests to win new customers (regional average 26%). Protection of their competitive position and provision of financial support to financially distressed customers was cited as a reason for offering trade credit far less often than by their peers in Asia.
Although fewer businesses in Hong Kong (37%) than in Asia (44%) reported an increase in trading on credit in the months following the outbreak of the pandemic, a larger percentage (54%) than the regional average (45%) told us that they continued to use credit at the same pace as last year. Only 7% of businesses (9% in Asia) turned down more trade credit requests than last year. This was most often due to insufficient information on the customer’s past payment performance.
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Credit administrative costs increase for nearly half of businesses
Nearly half of Hong Kong businesses (in line with the response rate for the region) told us their credit sales administrative costs increased in the year that followed the pandemic outbreak. This was most often reported by the businesses that opted to retain and manage customer credit risk themselves through self-insurance. Around 43% of respondents in both Hong Kong and Asia told us their capital costs (i.e. financing or interest costs paid during the time-lag between the credit sale and the invoice payment) increased following the pandemic outbreak.
This was most often reported by businesses that managed trade debts by sending invoice payment reminders. 39% of businesses spent more on debt collection in the year that followed the pandemic outbreak
(regional average: 42%). Not surprisingly this was most often reported by businesses that largely outsourced trade debt collection. However, an equal percentage of businesses (39%) told us that they were unsuccessful at trade debt collection (a greater percentage than Asia’s 33%). This was most common among businesses that did not use credit management techniques or tools.
When assessing customer creditworthiness, 65% of survey respondents rely most often on financial statements, and 60% on bank references. Least-common in Hong Kong is the use of credit reports from specialist agencies (cited by 28% of respondents compared to 40% in Asia).
Hong Kong offers shortest payment terms in Asia
Hong Kong extends the shortest payment terms in Asia, namely 37 days compared to the regional average of 54 days. This is shorter than last year (43 days) and suggests local businesses are increasingly risk averse, especially in comparison to their peers in Asia. 65% request payment within 30 days, significantly more than last year’s 49%, (regional average: 54%).
Payment terms are set according to the following main criteria: company standard payment terms (39% in Hong
Kong, 53% in Asia); matching supplier’s payment terms (37% in Hong Kong, 42% in Asia); and availability and cost of capital needed to finance credit sales (35% in Hong Kong, 43% in Asia). Despite being lower than the Asian averages, these results indicate that businesses in Hong Kong are focused on working capital management as a way to ensure the business has adequate funds to run their operations and meet their payment obligations.
of the total value of all B2B sales of the businesses polled in Hong Kong is overdue. This is higher than last year’s 48% in Hong Kong and slightly above the current 50% average for Asia.
Atradius Payment Practices Barometer – June 2021
More than half of all payments are overdue
52% of the total value of all credit sales is overdue (higher than last year’s 48% in Hong Kong and slightly above the current 50% average for Asia). Despite this increase affecting credit sales, just over half of the businesses polled (53%) recorded no change in payment timings over the past 12 months (regional average: 51%).
Fewer respondents in Hong Kong (35%) than in Asia (40%) told us that their customers delayed payments beyond due dates. Less than 10% of respondents in Hong Kong and Asia alike told us that customers sped up invoice payments. on average, 4% of long-term outstanding invoices (over 90 days) are written off (regional average: 5%).
Business confidence dented by uneven economic recovery
Hong Kong businesses are significantly more pessimistic than their peers in Asia in regards to an improvement in their business performance over the next coming months (26% anticipate growth, compared to 52% in Asia). Indeed more than twice as many businesses in Hong Kong than Asia predict business deterioration (14%, compared to the regional average of 5%).
There is general agreement between businesses in Hong Kong and Asia, that any growth will be mainly due to a domestic economic rebound (42% of respondents in Hong Kong compared to 48% in Asia) and to a combination of both healthier export flows and domestic economic rebound (33% of respondents in Hong Kong compared to 36% in Asia). Where opinion across the region differs is when looking exclusively at exports. There is greater optimism amongst Hong Kong businesses (25%) than their peers in Asia (15%) about improvement in business performance stemming only from exports.
Hong Kong businesses intend to continue offering trade credit to customers, with 42% planning to do so
to allow their customers more time to pay invoices (regional average: 36%). of course, in light of this, strong credit management is paramount.
To mitigate the impact of credit risk, more businesses in Hong Kong (47%) than in Asia (40%) said they plan to avoid concentrations of risk. 40% anticipates using letters of credit more frequently over the coming months (regional average: 37%). 36% anticipates outsourcing trade debt collection to specialists (regional average: 32%) and the same percentage anticipates wider usage of trade credit insurance (on par with the average for the region). 59% told us they believe this will help keep DSO levels stable (regional average: 48%).
However, businesses polled in Hong Kong are less optimistic about the outlook for DSO over the coming months than their peers in Asia. 32% of businesses in Hong Kong do not anticipate any improvement in DSO over the coming months, compared to 38% in Asia. 26% of businesses in both Hong Kong and Asia alike plan to focus on effective cash flow management and the containment of credit management costs to ensure adequate liquidity levels.