Overview of payment practices
Nearly 30% of the total value of B2B invoices is over 90 days overdue
28% of the total value of invoices in the Indian chemicals sector remains unpaid more than 90 days past the due date. This percentage is consistent with the average for the country. 8% of the total value of B2B invoices is written off as uncollectable (country average: 9%). As highlighted by the survey findings, an average of 67% of the total value of B2B invoices in the chemicals industry extends past the due date. This is in line with the country average. Respondents reported outstanding receivables in their own industry were most difficult to collect. According to most of the survey’s respondents, payment delays are caused by B2B customers in the Indian chemicals industry using outstanding invoices as a form of financing, or because of disputed invoices (67% of respondents in each case).
In terms of average timings of invoice-to-cash-turnaround, 65% of respondents reported a DSO (Days Sales Outstanding) up to 30 days, 23% up to 90 days and 12% of 90 days or more. This results in a 33-day industry average (country average: 60 days). If considered in light of the strong focus on debt collection displayed by Indian respondents in the chemicals industry, particularly through internal sources as well as law offices and attorneys (88% in each case), this average DSO figure confirms a relatively high success rate in collecting receivables, particularly invoices of high value.
9 out of 10 chemicals businesses choose to self-insure
9 out of 10 Indian respondents in the chemicals industry reported they retain and manage customer credit risk internally (self-insurance), or ask for guarantees of payment. 87% request letters of credit from their B2B customers to whom they sell goods and services with deferred payment.
In order to remain financially sound and avoid liquidity constraints caused by customer payment defaults, many respondents from the industry (54%) said they needed to delay payment of invoices to their own suppliers. In addition, 45% reported they had to increase time, resources and costs to chase overdue invoices.
of Indian respondents needed tostrengthen their internal creditcontrol procedures increasingtime, resources and costs tochase overdue payments
Atradius Payment Practices Barometer – June 2020
Despite expected deterioration in credit risk, business confidence remains strong
Significantly more Indian respondents from the chemicals industry (71%) expect customer credit risk to deteriorate than to improve (11%) over the coming 12 months. In response to this, most of the survey’s respondents (80%) plan on selling on cash terms, on offering discounts for early payment of invoices and on putting in place measure to avoid credit risk concentration in their customer portfolio substantially more often over the coming months.
For 91% of respondents, dependence on bank finance will increase over the coming months due to the increased indebtedness of the industry. When asked their opinion on the outlook for the availability of bank financing over the coming months, 82% of the respondents in the chemicals industry are confident that banks will continue provide loans to businesses to alleviate cash flow constraints. With the same positive mindset, the majority of Indian respondents in the chemicals industry believe that the business performance of their industry in terms of sales and profits will improve over the coming months.
Textiles / clothing
Majority experience late payment as customers use overdue invoices as a form of financing
For 7 in 10 of the survey respondents in the Indian textiles/ clothing industry, B2B customers delay payments because they use outstanding invoices as a form of financing, or due to disputes over the goods and services provided. Based on survey findings, late payments in the industry amount to an average of 66% of the total value of invoices issued in B2B trade (in line with the country average). Long overdue receivables (more than 90 days overdue) average 28% of the total value of overdue payments (in line with the country average). The proportion of receivables written off as uncollectable averages 8%, (country average: 9%). Respondents reported that they had the most difficulty in collecting debts from the consumer durables sector.
In terms of average timings of overdue invoices collection, 47% of respondents reported a DSO (Days Sales Outstanding) up to 30 days, 28% up to 90 days and 25% of 90 days or more. This results in an 89-day industry average (significantly above the 59-day country average). Despite the strong focus on debt collection displayed by Indian respondents in the textile/clothing industry (91% reported to use internal resources for debt collection), the average DSO figure points to a very low success rate in collecting receivables, particularly invoices of high value.
of the total value of overdue invoices in the Indian ICT/ electronics sector extends over 90 days past due, with a high likelihood to turn into bad debts
Atradius Payment Practices Barometer – June 2020
Late payments cause a ripple effect throughout the industry’s supply chain
Over half of the respondents in the Indian textile/clothing industry (54%) reported that due to late payments from their customers they needed to delay payments to their own suppliers to avoid liquidity shortages. 45% needed to pursue additional financing from external sources.
In order to strengthen their credit management procedures, almost all businesses surveyed (94%) said they have resorted to self-insurance, (retaining and managing customer credit risk in-house). Selling on a cash basis and putting in place measures to avoid a concentration of credit risk are also credit management techniques frequently used in the industry.
Upswing in long overdue invoices expected with negative impact on cash flow
Significantly more respondents in the Indian textiles/clothing industry (69%) anticipate a deterioration of the risk of customer payment default than an improvement (10%) over the coming months. 21% do not expect any change. In particular, the anticipated deterioration in customer credit risk is expected to cause an upswing in long-term (over 90 days old) outstanding invoices, further straining businesses’ cash flow. To safeguard their liquidity position from the negative impact of customers’ payment default, nearly half of the respondents in the industry (47%) plan to offer discounts for early payment of invoices, and 40% to request guarantees of payment more often over the coming months.
Looking ahead, respondents expressed concern about an increasing dependence of their industry on bank finance, due to higher levels of indebtedness. On a positive note, however, 4 in 5 respondents are confident that banks will further increase financial support for the industry going forward. When asked about the outlook for business performance of the industry, 92% of respondents said that business performance (sales and profits) will improve over the coming months.
ICT / Electronics
Majority uses overdue invoices as a form of short-term finance
In terms of the average time it takes to cash in overdue invoices, 71% of respondents reported a DSO (Days Sales Outstanding) up to 30 days, 12% up to 90 days and 17% of 90 days or more. This results in a 54-day industry average (below the 59-day country average). When asked about the reasons for customers’ payment default, 76% of respondents reported that B2B customers most often delay payment as a form of financing. Late payments also are quite often due to disputed invoices and inefficiencies of the banking system (69% of respondents).
Overall, survey findings show that late payment in the Indian ICT/electronics industry average 64% of the total value of the B2B invoices issued in the industry (country average: 66%). Long-overdue receivables (more than 90 days overdue, with a high likelihood of turning into bad debts) average 33% of the total value of overdue invoices (country average: 29%). The proportion of receivables written off as uncollectable averages 11% (country average: 9%). 3 in 5 respondents said they had the most difficulty collecting invoices from B2B customers in their industry.
Strengthening of internal credit control procedures needed to avoid cash flow issues
Over half of the respondents in the Indian ICT/electronics industry (57%) reported that due to late payments they needed to strengthen their internal credit control procedures. In order to do so, almost all respondents in the industry reported they resorted to the retention and management of customer credit risk internally (self-insurance).
For 55% of respondents, customers’ late payments caused them to delay payments of invoices to their own suppliers, or to ask for an extension of their bank overdraft. To minimise the impact of poor cash flow on their business operations, all respondents reported to have increased costs, time and resources to strengthen bad debt collection operations through internal resources, or by employing law offices or attorneys (83% of respondents).
Dependence of industry on bank finance expected to grow in the near term
As observed earlier, respondents in the Indian ICT/electronics industry are strongly focused on the collection of bad debts. Over the coming months, over half of the respondents (52%) plan on increasing their dunning activities (outstanding invoices reminders), or on outsourcing debt collection to an external agency in addition to strengthening their dedicated internal resources. This is likely to be linked to concerns expressed by the majority of respondents in the industry (70%) about a further deterioration of B2B customers’ payment practices in their industry over the coming months, resulting in a lengthening of DSO, with negative impacts on the investment capacity of the business.
Against this backdrop 86% of the respondents, particularly from the services sector of the ICT/electronics industry, foresee an increase in businesses dependence on bank finance due to cash flow constraints. However, respondents are confident that banks will play a major role in safeguarding the country’s economy from the fallout of the pandemic. With the same positive mindset, 97% of respondents in the industry believe that business performance (sales and profits) will improve over the coming months.