China’s economic slowdown is forecast to trigger increased trade credit risk in Australia and the broader Asia Pacific region, according to new Atradius research*.
The Atradius 2015 Payment Practices Barometer for the Asia Pacific region found that Australia and Indonesia, both of which are heavily dependent on commodity exports to China, were particularly susceptible to the economic slowdown.
Atradius has found that the Chinese economic slowdown appears to be impacting the insolvency environment. It’s likely this will have a knock-on effect in the Asia Pacific region that deal with businesses in China. Australia is one of China’s biggest trade partners, and is already feeling the effects of its economic situation.
The 2015 Barometer revealed that the total value of business-to-business invoices for foreign trade in the Asia Pacific that were more than 90 days overdue was significantly higher than the previous year.
In Australia, nearly 23 per cent of the value of foreign past-due business-to-business invoices remained unpaid 90 days after the due date. This is up by 6.4 per cent from last year’s rate. Furthermore, 95.6 per cent of Australian respondents experienced late payments from business-to-business customers abroad.
The research also found that, of all the Asia Pacific countries, Australia was the worst hit in terms of late invoice payment by foreign customers. Foreign invoices paid late represented 63.1 per cent of the average total value of Australian respondents’ export sales on credit. By contrast, the regional average was 45.2 per cent.
These findings are cause for concern. The longer receivables remain outstanding, the higher the likelihood is that they turn into bad debts and negatively impact the cash flow of Australian businesses
Given the regional economic climate, Australian companies doing business with organisations in China should mitigate their increased exposure risks. In the event of a foreign customer becoming insolvent, or simply not being able to pay an invoice due to the economic fluctuations in China, credit insurance can step in to plug the shortfall and help keep the business afloat.
*Atradius: Payment Practices Barometer Asia Pacific 2015,October, 2015.
About the Author:
Mark Hoppe has more than 18 years of experience working in the insurance industry. His career began as a broker in 1997 where he then moved from an assistant broker role to the position of NSW State Manager. His career at Atradius began in Sydney in 2006 as the Head of Client Service, which saw him responsible for all the day to day client and broker issues. In 2011 he transitioned into the role of Head of New Business for Atradius Australia.