Rising insolvencies drive demand for credit insurance in APAC | Insurance Business Asia
With global insolvencies expected to rise by 2% this year, uptake for credit insurance among businesses in Asia-Pacific is set to increase, according to a study by Atradius.
Asia-Pacific’s economies remain the main growth engine of the world economy, the international trade credit insurer said, despite global GDP growth expected to slow down from 3.2% in 2018 to 2.7% in 2019.
While domestic demand in the region remains robust, several downside risks appear to cloud the growth outlook. The slowing trade growth in many countries prompts businesses in the region to increase their use of trade credit in B2B transactions to stay competitive and gain market share.
The 2019 Atradius Payment Practices Barometer for Asia-Pacific survey found that the total value of B2B sales on credit in the region increased to 55.5%, up from 48.1% last year. Australia had the biggest increase to 71.5% from 47.7% last year. On average, 29.8% of the total value of B2B invoices issued by respondents in Asia-Pacific was overdue. This percentage was highest in India (39.0%) and lowest in Japan (13.2%).
Read more: Atradius unveils forecasts for 11 major Asian economies
To remain financially sound and avoid liquidity issues caused by payment defaults of customers, 41% of respondents had to pay their own suppliers late, the survey revealed. This was most often expressed by respondents in India (51%) and Indonesia (46%). Ultimately, an average of 2.1% of the total value of respondents’ B2B sales on credit (up from 1.9% last year) was written off as uncollectable. This suggested that businesses are less successful in collecting invoices than last year.
Almost a third (31%) of respondents in Asia-Pacific expect customers’ payment behaviour to deteriorate, and long overdue invoices (more than 90 days overdue) to increase. These are most pronounced among respondents from India (52%) and Indonesia (35%). To protect their business against the rising trade credit risk, 42% of respondents in the region said they will increase the use of credit insurance - for China and Hong Kong this percentage rises to above 50%.
“Overall, economic conditions in 2019 are expected to be more challenging than last year,” said Eric den Boogert, managing director of Atradius Asia.
The annual Atradius Payment Practices Barometer for Asia-Pacific covers the markets of Australia, China, Hong Kong, India, Indonesia, Japan, Singapore, and Taiwan. According to Atradius, the 2019 survey questions were upgraded to reflect that payment on credit has increased over the last year in the Asia-Pacific region, increasing the report’s relevance to businesses trading on credit.