Indonesia: liquidity issues spark B2B payment default

Maksukäytäntöbarometri

  • Indonesia
  • maataloussektori,
  • kemian- ja lääketeollisuus,
  • elektroniikka- ja ICT-sektori,
  • elintarviketeollisuus,
  • paperiteollisuus

28 kesäkuu 2022

Companies polled said they tackled the issue with more regular reviews of customer credit behavior to spot warning signs of financial distress.

Introduction

The 2022 edition of the Atradius Payment Practices Barometer survey findings for Indonesia is a valuable opportunity to hear directly from companies about how their business operations are coping with the disruptive impact of the current challenging economic and trading circumstances.

Topics covered include: payment terms set for business-to-business (B2B) customers, the average time it takes to turn overdue B2B invoices into cash, the impact of late or non-payment on the business, and expected challenges to profitability during the coming months.

The survey questionnaire was completed by businesses in Indonesia during Q2 2022. Responses given by companies polled are contained in the report for Indonesia, which is part of the June 2022 edition of Atradius Payment Practices Barometer for Asia available  on this website by clicking here.

Key takeaways from the report for Indonesia 

Payment defaults sparked by liquidity troubles

  • Liquidity issues were reported to be the main cause of B2B payment default in the Indonesian market, even though many businesses said they were trying to tackle the problem with more rigorous assessments of customer credit behaviour. Bad debts showed an upward trend across all surveyed industries, with businesses in the agri-food sector suffering in particular. There was a slight decrease reported for unpaid B2B trade debt overall. However, the paper industry in Indonesia appears to be the hardest hit by payment default from customers.
  • Longer trade credit terms were offered to protect the competitive position of companies, a change of approach to setting payment terms that was reported across all industries surveyed in Indonesia. Another reason for longer payments terms was given by the businesses in the electronics/ICT sector, which said that profit margins on sales was the main factor. Nearly 40% of companies polled in the market also said they see the value of a credit insurance cover when considering decisions about payment terms.

Rising reliance on credit insurance as DSO swings expected in future

  • Days Sales Outstanding (DSO) deteriorated for one third of companies polled across Indonesia during the past year. An increased use of external collection agencies and discounts for early payment were two of the most often used measures to stabilise the situation. Generally, there was a sharply rising awareness of the value of strategic credit risk management, with one quarter more Indonesian businesses saying they used credit insurance or purchased specific trade finance solutions.
  • Looking ahead, the ongoing impact of the pandemic and safeguarding cash flow levels were cited as the primary concerns across all industries surveyed in the Indonesian market. Despite this, over two in five businesses polled anticipate an increase in B2B trading on credit and an improvement in B2B payment practices over the coming months. Apparently, the paper industry does not entirely share this view, expecting significant swings of DSO over the next months, which prompted businesses polled in the industry to say they would continue insuring their trade receivables

Key survey findings for Indonesia

  • Sales growth main driving force behind B2B trade credit decisions
  • Trade credit periods lengthened to keep companies competitive
  • Upward trend of write-offs prompts businesses to improve collections efficiency
  • Liquidity troubles prime trigger of payment default from B2B customers
  • Longer time to cash in overdue invoices severely impacts liquidity levels
  • Businesses lean towards optimistic outlook for trading on credit
  • Upward trend of credit insurance take-up enables DSO stabilisation

Interested in finding out more?

Please download the complete report for a complete overview of the payment practices in Indonesia and in the following local industries:

  • Agri-Food
  • Chemicals/Pharma
  • Electronics/ICT
  • Paper