The coronavirus pandemic coupled with an increasingly bitter US-China trade war have precipitated a deterioration in payment practices across Asia according to a survey by Atradius.

The credit insurer says the most often-used credit management tools reported by respondents to the survey include letters of credit (L/Cs) and payment guarantees.

Stormy times ahead

Atradius says in its latest Payment Practices Barometer that businesses already struggling under severe liquidity constraints are now braced for an anticipated 15 per cent fall in global trade.

With stormy times ahead, featuring an increased risk of bad debts and insolvencies, the vast majority of businesses throughout the region expressed their dedication to using one or more credit management tools to protect their accounts receivable.

Credit management tools

The credit management processes described by the businesses interviewed for the survey range from a reduction of single-buyer concentrations and demands for cash payments, to requests for L/Cs, payment guarantees, self-insurance and the adoption of credit insurance.

Many respondents reported using a combination of tools. Bank guarantees and L/Cs are frequently used by UAE businesses while in Hong Kong, businesses expressed an increasing interest in credit insurance.

Deterioration anticipated

Despite the very frequent use of L/Cs and bank guarantees for credit sales, nearly half of the respondents in the UAE needed to delay payments to their own suppliers due to difficulties in collecting invoices.

Due to the disruptive impact the coronavirus pandemic is having on both international trade and the domestic economy, 53 per cent of survey respondents in the UAE expressed concerns about a deterioration of their B2B customers' payment practices, causing the length of time B2B invoices to remain unpaid to rise in the coming months

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.