Survey findings for Taiwan
Majority of B2B sales made on credit
55% of the total value of B2B sales across the industries surveyed (ICT/electronics, textiles/clothing and chemicals) was made on credit during the last 12 months.
This compares to 54% in Asia overall and 59% in Singapore and 57% in Hong Kong. 41% of the businesses polled in Taiwan (equal to the regional average) told us that between 60% and 100% of their B2B sales are made on credit. Taiwan’s chemicals/pharma industry has the greatest percentage of credit sales with an average of 58% (higher than the 54% average for the industry in
Asia). This also compares to 55% in Taiwan’s ICT/electronics industry (in line with the average for the region) and 50% in the textiles/clothing industry (regional average: 57%). 51% of all domestic B2B sales are made on credit (regional average: 56%) and 49% of export sales (regional average: 44%). Businesses in the ICT/electronics industry are more likely to sell on credit to foreign than to domestic customers, while both the chemicals/pharma and textiles/clothing industry more often offer trade credit to their domestic than foreign customers.
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Appetite for credit sales hold steady
Despite a widespread use of credit insurance (65% of businesses use credit insurance) there appears to have been little appetite during the past 12 months to increase the amount of credit sales. Fewer businesses polled in Taiwan (31%) than in Asia (44%) reported an increase in trading on credit. Indeed, a majority of 63% (regional average: 45%) reported trading on credit at the same pace as last year.
Half of the businesses we spoke to (slightly fewer than the 54% regional average) told us they used trade credit to encourage repeat business with established customers. Trying to win new customers through the use of trade credit was the primary aim of 24% of respondents in Taiwan, almost the same percentage as in the region (26%).
Other reasons given for accepting
trade credit included the bid to stay competitive and to provide customers with short-term finance, both of which were reported more often in Taiwan than in Asia. The risks associated with trade credit include a potential increase in the cost of managing account receivables as well as the risk of bad debts. Our survey results show that businesses in Taiwan were relatively good at containing credit management costs with only 39% reporting an increase over the past 12 months, compared to 49% in Asia. A similar percentage report an increase in financing or interest costs paid during the time-lag between the credit sale and the invoice payment. However, significantly fewer businesses in Taiwan (26%) than in Asia (42%) reported an increase in the amount they spent on trade debt collection and bad debts.
Taiwan: top 5 greatest challenges to business profitability in 2021?
Taiwan: on average, within what time frame do your B2B customers pay their invoices?
Taiwan offers the longest payment terms in Asia
Businesses in Taiwan extend by far the longest payment terms in Asia, offering their customers 73 days on average to settle invoices compared to the regional average of 54 days. However, this figure does not include a year-on-year increase for the majority of businesses, as only 19% lengthened their terms compared to last year and 73% kept terms the same.
This contrasts to the regional average where 35% of businesses gave their customers longer time to settle of invoices and 55% did not alter the payment terms. The reasons businesses gave for the setting of payment terms included: using the company standard payment terms (as
reported by 43% in Taiwan and 53% in Asia); reflecting the payment terms of their suppliers (41% in Taiwan and 42% in Asia); and the availability and cost of capital needed to finance credit sales (40% in Taiwan and 43% in Asia). Additionally, more businesses in Taiwan (42%) than in Asia (39%) set payment terms according to the credit capacity of their customers. In addition, when assessing the creditworthiness of their customers, 72% of survey respondents told us that their primary source of credit information included their customers’ financial statements (this is the same percentage as reported in Asia).
of the respondents to our survey in Taiwan told us they employ trade credit insurance to mitigate the impact of customer credit risk on the business (regional average: 59%)
Atradius Payment Practices Barometer – June 2021
Taiwan reports largely positive payment practices
The vast majority of survey respondents reported positive payment practices. 74% told us they recorded no change in payment timings over the past 12 months (significantly more than the 51% reporting the same in Asia).
Correspondingly just 23% of businesses (regional average: 40%) reported an increase in late payments. overdue receivables represented an average of 39% of the total value of all B2B credit sales (lower the 50% average for Asia). An average 3% of long-term invoices (over 90 days) were written off as uncollectable (regional average: 5%). The contrast between the payment practices reported by businesses in Taiwan versus Asia overall may be explained by different approaches to trade debt
management across the industries surveyed. Further detail about individual industry results can be found below. To mitigate the risk of non-payment associated with credit sales, most of the businesses (70%, compared to 68% in Asia) told us they relied on self-insurance. 65% employed credit insurance (higher than the 59% for Asia). Factoring was used by 66% of businesses compared to 62% in Asia. The widespread use of credit insurance and factoring is likely to be a key reason why 73% of businesses told us they kept DSo stable over the past 12 months, a significantly higher number than in Asia where only 52% reported the same. Indeed only 22% reported increases in DSO, compared to 36% in Asia.
Businesses in Taiwan pessimistic about opportunities for growth
Despite the fairly upbeat picture suggested by low percentages of late payments and the generous use of longer payment terms, Taiwan’s businesses were more downbeat when questioned about forecasts for next year. 32% told us that they consider containment of costs to be the greatest challenge to their business profitability over the next 12 months. This compares to 20% of businesses in Asia sharing the same concern, where the majority of businesses tend to be more concerned about maintaining adequate cash flow. Potential bank lending restrictions as well as the possibility of renewed geopolitical trade tensions are also reasons for concern for more businesses in Taiwan than in Asia. Looking ahead, Taiwan’s businesses appear to be more pessimistic than their peers in Asia in regards to an improvement in their business performance over the next 12 months. Significantly fewer business polled in Taiwan (32%) than in Asia (52%) believe their business performance (sales and profits) will improve over the coming year. Fewer businesses polled in Taiwan (37%) than in Asia (48%) are of the opinion that an improvement in business performance will be mainly due to the
consolidation of the domestic economic rebound. 23% in Taiwan (higher than the 15% average for Asia) anticipate any improvement in their business performance will come exclusively from exports. 40% in Taiwan (36% in Asia) believe that the combination of healthier export flows and domestic economic rebound will favour an improvement in their business performance. More businesses in Taiwan (38%) than in Asia (23%) are of the opinion that B2B credit will neither play a greater nor smaller role in Taiwan’s businesses trade relationships. However, the same percentages of respondents (35% Taiwan, 36% Asia) believe that credit sales will increase over the next 12 months to customers additional time to pay invoices. Interestingly, fewer businesses in Taiwan (21%) than in Asia (32%) believe that credit sales will increase over the next 12 months to stimulate demand. However, to mitigate the impact of customer credit risk associated with trading on credit, most of the business polled in Taiwan (36%) told us they would make use of factoring to improve cash flow for their working capital needs. 70% believe this will contribute to keeping DSO levels stable (regional average: 48%).