Credit insurance could play a more important role for businesses throughout the region as risks continue to rise, a new study has found.
In a report published by international credit insurance leader Coface, there has been no improvement in corporate payments in Asia Pacific in 2015 with 70% of those surveyed experiencing overdue payments throughout the year.
Jackit Wong, Asia Pacific economist of Coface, told Insurance Business that the annual Asia Corporate Payment Survey shows that credit insurance “could be playing a more important role” for business in Australia and throughout the region.
“The study indicates that credit insurance could be playing a more important role for businesses throughout Asia Pacific,” Wong said.
“Overdue payment risks appear to have increased, adding to financial pressures on Asian companies.
“This suggests that Asian companies should seek ways to limit the financial impact of non-payment risks. Otherwise, cash flow, the lifeblood of a business could be significantly reduced, increasing the chance of bankruptcy.
“Although the majority of Asian companies (65.3% vs. 63.5% in 2014) utilised credit management tools, credit agency reports and recommendations (33.3%) continued to be the most popular tool, followed by trade credit insurance (22.6%), debt collection (19.8%) and factoring (14.4%).
“So, trade credit insurance could be playing a more important role for businesses throughout Asia Pacific.”
Wong stressed that the figures reported by Coface present brokers with an opportunity to present clients with facts around credit insurance and how it can help their businesses.
“The Coface report could help brokers, insurers and clients to understand the corporate payment trends and experiences across the 8 economies surveyed in the Asia Pacific region, highlighting the overdue payment risks, in particular the ultra-long overdue payment risks, and their potential financial impact on clients,” Wong continued.
“According to Coface’s experience, approximately 80% of ultra-long overdue amounts (i.e. 180 days or more) are not paid back at all. When over 2% of a company’s total annual turnover is in ultra-long overdues, the company’s liquidity can become an issue, with its ability to repay suppliers in question.
“The Coface report traced the evolution of corporate payments in 11 sectors, so brokers and insurers can use our report to help clients understand the overdue payment risks in the sector(s) that their businesses might be facing, relating to credit insurance as one of the key credit management tools to help reduce the risks of non-payment.’
The Australian experience did improve over 2015 but Wong and the Coface report offered a cautious outlook for the country as international commodity prices and the economic slowdown in China continue to impact the economy.
“In 2015, the overall corporate payment experience in Australia improved, with fewer respondents faced with overdue and ultra-long overdue issues,” Wong said.
“This was a marked improvement, especially against the backdrop of the slowing domestic economy and the rout of commodities.
“That said, there were several high profile businesses that ceased trading over the period.”
