Atradius Payment Practices Barometer. International survey of B2B payment behaviour Core results Taiwan

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1 Results October 2011 Atradius Payment Practices Barometer International survey of B2B payment Core results Taiwan

2 2 Copyright by Atradius N.V. October 2011 Published by Atradius Corporate Communications & Marketing The survey was conducted by Heliview Research, Breda

3 Country report Taiwan Table of contents 1 Executive summary 1.1 Introduction Conclusions Core results Taiwan Use of trade credit 2.1 Sales on credit terms (domestic/foreign) Trade credit supply determinants Credit management 3.1 Average payment terms (domestic/foreign) Payment terms determinants Early payment discounts Use of credit management tools: first half Trend in the use of credit management tools Average payment durations and average payment delays Overdue B2B invoices (domestic/foreign) Payment timing Main reasons for payment delays from customers Uncollectable receivables (domestic/foreign) Cash inflow monitoring 5.1 Average Days Sales Outstanding (DSO): first half DSO trend over the past year Survey design 6.1 Survey background Survey objectives Structure of the survey Survey scope Sample overview...21 legal disclaimer...22 your contact at Atradius Executive summary Use of trade credit Credit management Cash inflow monitoring Survey design 3

4 1 Executive summary Table of contents Executive summary 1.1 Introduction This report is a part of the 10th edition of the Atradius Payment Practices Barometer. It focuses on Taiwan, examining the primary aspects of the country s trade credit supply and management, as well as the payment of its international and domestic trading companies. The objectives of this individual country report is to provide companies trading internationally with a better understanding of the trade dynamics of the countries with which they do business, or plan to do business. Without an accurate understanding of the payment of both domestic and foreign customers, companies can encounter serious cash flow problems. The report therefore looks at a series of key areas of Taiwanese companies trade credit and credit management policies, including the extent in which trade credit is granted to customers, the payment terms set for customers, the incidence of late or nonpayment, and the actions taken to mitigate payment risks. The October 2011 Payment Practices Barometer (overall survey) is available on the Atradius website at Use of trade credit Credit management Cash inflow monitoring Survey design 1.2 Conclusions Country Manager for Taiwan & Hong Kong, Matthew Cockerill, commented: Taiwan is very exposed to the payment of its neighbours and the current global economic situation is a key factor in explaining why more than 30% of the companies interviewed experienced a year-on-year increase in their average DSO, although it is comparatively low at 37 days. Insolvency levels also remain low, which is a good indicator of Taiwan s economic performance, which is expected to grow by 4.8% in 2011 despite the recent debt crises in Europe and the Unitedo States. Taiwan cuts a profile as an export-oriented economy with a not too prompt payment environment based upon our analysis. There was no real preference for cash sales (average 51%) evident among Taiwanese companies, but an eye-catching 42% of the credit-based sales involved foreign buyers, with only Singapore averaging a higher percentage of foreign sales on credit. The tone for payment trends was set by an average 37 day term requested for domestic payments and a 39 day term set for exports, both 6 days above the regional average. These were influenced most by a mix of trade relationships and company standard terms. The figures were skewed upwards by some quite protracted terms, some averaging over 50 days, set by largersized companies and manufacturing firms. The payment risks brought by longer terms meant that Taiwanese companies used a cluster of risk mitigation techniques to maintain greater control over payment inflows. In addition to an above-average level of requests for secured forms of payment and very active credit management activity, there were additional pockets of diligence, such as the 63% of small companies which checked their buyer s track record, and the 48% of financial services companies that sold on cash terms. To decrease payment durations, more than half of the respondents (53%) offered early payment discounts, and just under one third of their customers took advantage of the discounts. This will have helped to keep a lid on payment times, which averaged 35 days, the longest Asia-Pacific waiting time. The promptest payments were received by the financial services industry, but times were skewed by Taiwan s larger two business sizes, which averaged times in the day range. Key clues on the default risk were offered by the overdue invoices process. Around 33% of receivables went past the due date, and, by the 90 day stage, 7% of domestic receivables and 4.7% of foreign invoices remained uncollected. Eventually, 4.5% of domestic and 4.3% of foreign invoices fall into default, with large companies and financial services firms experiencing relatively higher levels of uncollectable receivables. There was evidence that the insufficient customer funds cited as the key payment obstacle remain a hindrance to efficient payment collections in Taiwan. Respondent companies averaged days sales outstanding (DSO) of 59 days, above the regional and survey averages. Although the figure was skewed by the performance of the financial services industry, which recorded an 87 day DSO, overall the average Taiwanese DSO rose by nearly 10 days during the first half of Less than 50% of medium/ large and large companies DSO were unchanged. Greater due diligence on buyers should help to address some of the credit risk faced by survey respondents. 42% of Taiwanese respondents increased their checks on buyer creditworthiness in the first half of 2011, with small, medium/large and large companies all recording an uptake in their due diligence. 4

5 1 Executive summary 1.3 Core results Taiwan Taiwanese companies made 49% of their B2B transactions on credit terms (Asia-Pacific average: 52%). 42% of credit-based sales involving foreign buyers (Asia-Pacific 34%). Largersized and manufacturing companies extended trade credit most frequently. Sustained sales relationships most influenced trade credit decisions (59%). Medium/large and small companies, and manufacturing firms gave high priority to this rationale. Sales promotion tool and confirming the quality of the product before payment were closely ranked for second place. Taiwanese companies set average 37 day payment terms, split into 37 day domestic payments and 39 day foreign payment terms: both 6 days above the regional average. Larger companies and manufacturers set the longest terms. Smaller companies and financial services firms set the shortest. Payment terms were seen to be most influenced by trade relationships and company standard terms. High weightings were also recorded for credit capacity of the customer and credit availability. 53% of respondents offered early payment discounts, above the 48% regional average. Small companies and wholesale/ retail/distribution firms offered early payment discounts most regularly. 33% of domestic and 32% of foreign customers took advantage of the discounts. Two forms of risk mitigation were used with a frequency above the regional average: requesting secured forms of payment and deploying active credit management. 63% of small companies checked their buyer s track record; and 48% of financial services companies sold on cash terms. Taiwanese firms showed a significant 42% increase in their use of checks on buyer creditworthiness in the first half of Buyer creditworthiness checks rose sharply among small, medium/large and large companies. Companies received their payments in an average 35 days, the longest Asia-Pacific waiting time. Times were skewed by Taiwan s larger two business sizes. Domestic and export payments averaged 35 days and 37 days respectively. The promptest payments flowed to the financial services industry. Overdue invoice levels fell just above the Asia-Pacific mean (average: 30% domestic/32% foreign). 33% of receivables went past due date. Over 50% of invoices fell overdue at financial services companies. 7% of domestic receivables and 4.7% of export invoices reached the 90 day mark (delinquent). The key reason cited for B2B payment delays, particularly by financial services firms, was insufficient availability of funds. Complexity of the payment procedure, goods not correspondent to order and disputes over the quality of goods were other frequently cited reasons. 4.5% of domestic invoices and 4.3% of foreign receivables were not collected, just above the regional 4% average. Large companies and financial services firms experienced relatively higher levels of defaults. Taiwanese companies averaged 59 days DSO, above the regional and survey averages. The figure was skewed by the performance of the financial services industry, which recorded an 87 day DSO. 7 7 Taiwan s average DSO rose by nearly 10 days during the first half of % of respondents DSO increased, above the 23% overall survey average. Less than 50% of medium/ large and large companies DSO were unchanged. Financial services firms reported very unstable DSO. Table of contents Executive summary Use of trade credit Credit management Cash inflow monitoring Survey design 5

6 2 use of trade credit Table of contents Executive summary Use of trade credit Credit management 2 Use of trade credit Respondents made 49% of their transactions on credit terms Long-term sales relationships ranked as the most important reason for extending trade credit 2.1 Sales on credit terms (domestic/foreign) Taiwanese companies showed no real preference for cash-based sales over trade credit Demonstrating no real preference for the safety of cash, Taiwanese companies made 49% of their B2B transactions on credit terms. This fell below the average frequency for trade credit use in the Asia-Pacific region, where 52% of respondents sold on credit. However the Taiwanese respondents showed more openness to export credit than many of their Asia-Pacific counterparts, with a very significant 42% of respondents credit-based sales involving foreign buyers, compared to the 34% Asia-Pacific mean. Reinforcing this greater openness, only 19% of respondents said they would offer no credit to foreign buyers. What percentage of the total value of your annual B2B sales (domestic and foreign) are made on a cash basis/credit terms? 51 % 49 % 52 % 48 % Cash sales 43 % Credit terms 57 % Manufacturing companies extended trade credits most frequently By industry, Taiwan s manufacturing industry made the most use of trade credit (average 58% of sales). Showing a relatively less credit friendly stance by comparison were the wholesale/retail/ distribution industry (47%), services (41%) and financial services sectors (37%). Taiwanese manufacturers also exhibited the most open stance towards foreign B2B credit sales (51% on credit). The weightings for services, financial services and wholesale/retail/ distribution firms were 45%, 42% and 32% respectively. What percentage of the total value of your B2B credit sales were to domestic/foreign customers? 58 % 42 % B2B domestic customers 66 % 34 % B2B foreign customers 75 % 25 % 6 Cash inflow monitoring Survey design Taiwan Asia/Pacific Overall survey Sample: all interviewed companies Source: Atradius Payment Practices Barometer October 2011 Larger companies showed the highest credit appetite From a business size perspective, appetite for credit-based sales showed little differentiation among the largest two Taiwanese categories. Large companies transacted 57% of their B2B transactions via trade credit, followed very closely by medium/large businesses (56% of respondents). Less inclined to extend trade credit were small firms and micro-businesses (46% and 44% trade credit sales respectively). The two larger business sizes also demonstrated the most open stance towards foreign B2B credit. Medium/large Taiwanese companies made 53% of their trade credit sales to foreign buyers, with large firms making 52% to their foreign sales on credit. The weightings for small businesses and micro-businesses were 41% and 32% respectively. Taiwan Asia/Pacific Overall survey Sample: interviewed companies with credit sales Source: Atradius Payment Practices Barometer October 2011

7 2 use of trade credit 2.2 Trade credit supply determinants What are the main reasons that your company grants trade credit to its B2B customers? Table of contents percentage To establish long lasting trade relations with customers As a sales promotion tool Executive summary To allow customers time to confirm the quality of the product before payment As a source of short term finance Use of trade credit Sustained sales relationships most influenced Taiwanese trade credit decisions The policy of nurturing long-term sales relationships with customers was ranked as the most important reason for extending trade credit. 59% of Taiwanese respondents cited this reason, significantly above the Asia-Pacific survey average (50%). Sales promotion tool (17% of respondents) was ranked as the second most important determinant, followed by confirming the quality of the product before payment (15%) and source of short-term finance to customers (9%). Medium/large and small companies gave the greatest emphasis to long-term sales relations Medium/large enterprises (67% of respondents) gave the greatest priority to long-term sales relationships with customers as a key trade credit determinant, followed closely by small companies (65%). The weighting for large and micro-businesses was 53% for each. Micro-companies accorded the highest weighting (22%) for as a sales promotion tool, mirroring the push to expand among many tiny companies. Taiwan Asia/Pacific Overall survey Sample: interviewed companies with credit sales Source: Atradius Payment Practices Barometer October 2011 that rank respective aspect most important Manufacturing firms gave the highest priority to lasting trade relationships Manufacturing companies highlighted long-term sales relationships with customers as the most important trade credit determinant with the most frequency (69% of respondents). Lower weightings were accorded by the wholesale/retail/distribution industry (63%), services (47%) and financial services (46%). By contrast, the manufacturing sector s enthusiasm for source of short-term finance to customers (3%) and sales promotion tool (11%) was at the lowest end of the spectrum in each case. The financial services industry was the most regular proponent of confirming the quality of the product before payment (21%), whereas the wholesale/retail/distribution sector showed the least enthusiasm (5%) for this trade credit rationale. Credit management Cash inflow monitoring Survey design 7

8 3 credit management Table of contents Executive summary Use of trade credit Credit management Cash inflow monitoring Survey design 3 Credit management Respondents set average payment terms at 37 days (domestic payments) and 39 days (foreign) Trade relationships and company standard terms were the most prominent influences in setting payment terms 53% of companies offered early payment discounts Secured forms of payment and active credit management were used above the regional average 42% of respondents reported an increase in their checks on buyer creditworthiness 3.1 Average payment terms (domestic/foreign) What payment terms does your company set for its domestic/foreign B2B customers? Taiwan Asia/Pacific Overall survey Taiwanese companies set average 37 day payment terms In the Asia-Pacific region, only Japan extended its payment terms out as far as Taiwan, with each country extending an average 37 day terms. Taiwanese respondents asked for payment, on average, in 37 days for domestic and 39 days for foriegn sales, in each case 6 days above the regional average. Domestic Foreign Domestic Foreign Domestic Foreign percentage Payment terms were closely linked to company size, two broadly distinguishable groups of payment terms emerged in Taiwan. The approach of medium/large companies was to set the longest terms (52 days domestic/51 days foreign), a little longer than those set by large companies (49 days domestic/43 days foreign). At the other end of the scale, small companies set average 30 day terms, while micro-businesses asked for domestic payments within 28 days and foreign payments within 33 days days days days Over 90 days average days Sample: interviewed companies (active on domestic and foreign markets) Source: Atradius Payment Practices Barometer October 2011 The financial services sector set the shortest payment terms The shortest payment terms were set by Taiwanese respondents in the financial services industry (26 days domestic/30 days foreign). Manufacturing companies (44days domestic/43 days foreign) requested the longest terms, aligning with the greater propensity that this sector showed to trade credit. Wholesale/ retail/distribution firms and services companies set their terms in a day range

9 3 credit management 3.2 Payment terms determinants Top 3 payment terms determinants (domestic/foreign) Table of contents percentage Taiwan Trade relationship with the customer Company standard payment terms Credit capacity of the customer Executive summary Asia/Pacific Trade relationship with the customer Company standard payment terms Credit capacity of the customer Use of trade credit Overall survey Trade relationship with the customer Company standard payment terms Credit capacity of the customer Credit management B2B domestic customers B2B foreign customers Sample: interviewed companies (active on domestic and foreign markets) Source: Atradius Payment Practices Barometer October 2011 Payment terms were most influenced by trade relationships and company standard terms Taiwanese companies reported trade relationship with the customer to be just about the most influential factor in setting payment terms. 52% of respondents cited this as a domestic payment terms determinant, and 59 % as a rationale for setting foreign payment terms. Company standard terms (53% domestic/45% foreign) was very highly ranked, and credit capacity of the customer (42% domestic/44% foreign) was not far behind. High weightings were also recorded by credit availability (40% domestic/41% foreign). The proximity of these rankings indicates that Taiwanese firms are adept at assessing a series of determinants on how they might set credit terms, and balancing their company policy with other external factors. Trade relationships was accorded the highest ratings as a payment terms determinant Trade relationship with the customer figured prominently in the analysis. 78%, 62% and 53% of medium/large, small and micro Taiwanese companies highlighted this as a major export terms determinant, while 61% of medium/large companies and 56% of micro-businesses prioritised this reason as a major driver of domestic terms. Company standard terms was also singled out by 61% of medium/large companies, 56% of large companies and 54% of micro-companies as an influence on domestic payment terms. 50% of medium/large business respondents also saw credit capacity of the customer and credit availability as key drivers of export payment terms. Trade relationships received the highest ratings for most influential determinant Trade relations with the customer received the heaviest weightings of all. 50% or more of respondents in the manufacturing, financial services and wholesale/retail/distribution industries prioritised this reason as both a domestic and foreign payment terms determinant. Taiwanese manufacturers accorded the highest priority, by any sector, to company standard terms (60% domestic/53% foreign); while wholesale/retail/distribution companies accorded the highest weightings of any sector to credit capacity of the customer (50% domestic/64% foreign). 59% of financial services respondents cited credit availability as a key export terms determinant. Cash inflow monitoring Survey design 9

10 3 credit management Table of contents Executive summary Use of trade credit Credit management Cash inflow monitoring Survey design 3.3 Early payment discounts 53% of respondents offered early payment discounts Taiwanese businesses showed a middling appetite for discounting early B2B payments. An average 53% of respondents offered this option, above the Asia-Pacific regional average (48%). Where 33% of domestic and 32% of foreign customers of Taiwanese respondents offered discounts for early payment of invoices took advantage of them, above the average acceptance levels in the Asia-Pacific region (30% domestic/28% foreign). Does your company discount early payment of invoices? 53 % 47 % 48 % 52 % 40 % Small companies offered early payment discounts most regularly Analysed by size, the average frequency of offers in each segment surpassed the regional Asia-Pacific average. Small Taiwanese enterprises offered early payment discounts with the greatest frequency (62% of respondents), but reported the lowest level of customer usage (26% domestic/24% foreign). Lesser appetites for offering discounts were shown by medium/large firms (58%), large businesses (54%) and micro-companies (45%). The highest rate of customer usage was reported by large enterprises (45% domestic/43% foreign). 3.4 Use of credit management tools: first half 2011 Yes 60 % Taiwan Asia/Pacific Overall survey Sample: all interviewed companies Source: Atradius Payment Practices Barometer October 2011 No Wholesale/retail/distribution firms most inclined to offer discounts for early payment The proclivity for early payments discounting was at its highest, by industry, across the wholesale/retail/distribution sector. 63% of these respondents offered discounts for early payment. More than half of the respondents in the manufacturing (57%) and financial services (56%) industries showed an openness to this technique. Although just 40% of services sector companies offered the option, this sector had the highest level of customer usage, with 40% of domestic and 42% of foreign customers taking advantage of the option. Manufacturers met with the lowest frequency of customer usage (27% domestic/29% foreign. What percentage of your domestic/foreign B2B customers take advantage of the early payment discount? 32 % 33 % B2B domestic customers B2B foreign customers 30 % 28 % 26 % 26 % Taiwan Asia/Pacific Overall survey Sample: interviewed companies that discount early payment (that sell products or services abroad) Source: Atradius Payment Practices Barometer October 2011 Two risk mitigation tools were used by more Taiwanese respondents than the regional average Taiwanese companies used credit management tools to mitigate their payment risks at a relatively low frequency among the surveyed Asia-Pacific countries. Survey participants reported using a common form of risk mitigation at a rate above the regional average in two areas. 46% of companies reported requesting secured forms of payment (33% average Asia-Pacific usage) and deploying active credit management (36% Asia-Pacific). Taiwanese respondents recorded less than the regional average use of the options of checking a buyer s track record (42%); checking a buyer s creditworthiness (40%), monitoring a buyer s credit risk (35%), using credit insurance (31%); and selling on cash terms (35%). 10

11 3 credit management Medium/large firms were very active in two areas Analysed by company size, a standout figure was the 67% of medium/large firms that used active credit management and 50% requested secured forms of payment. 63% of small companies checked their buyer s track record. Manufacturers used two risk mitigation tools with a 50% plus frequency Analysed by industry, the 51% of manufacturers that used active credit management and the 54% that requested secured forms of payment stood out. Wholesale/retail/distribution firms used active credit management and checking a buyer s creditworthiness with a 47% frequency. Financial services companies showed the highest inclination for selling on cash terms (48% of respondents). Table of contents Executive summary How do you protect your business against payment default? Request secured forms of payment percentage Use of trade credit Active credit management (credit checks, dunning) Check buyer s track record Reduce reliance on a single buyer Credit management Check buyer s creditworthiness Sell on cash terms Use credit insurance Reserve against bad debts Monitor buyer s credit risk Self insure Retain a collections agency Cash inflow monitoring Survey design Taiwan Asia/Pacific Overall survey Sample: all interviewed companies Source: Atradius Payment Practices Barometer October

12 3 credit management Table of contents Credit management Executive summary Use of trade credit Cash inflow monitoring Survey design CusTOmers payment 3.5 Trend in the use of credit management tools In the first half of 2011 (compared to the second half of 2010) how have your credit management changed? The use of checks on buyer creditworthiness showed a significant uptake in H Taiwanese firms showed an increased uptake of one risk mitigation tool during the first half of % of respondents reported a rise in their use of checking buyer creditworthiness (Asia-Pacific average increase: 38%). The average uptake of monitoring buyer risks and secured forms of payment were below the regional average. percentage Checking of buyer s credit worthiness Monitoring of buyer s credit risk Use of secured forms of payment Dunning Hedging against exchange rate risk Use of early payment discounts Use of self insurance Use of credit insurance Use of outsourced collections Buyer creditworthiness checks rose sharply in three segments The trend described above was reflected in the analysis By business size. Three industry cross-sections recorded a significant rise in use of checking buyer creditworthiness: 51% of medium/large firms, and 46% and 41% of small and medium/large firms respectively, lifted their use of this option. The frequency with which large and medium/large Taiwanese firms resorted to requesting secured forms of payment rose by 50% and 42% respectively. Another trend worthy of mention was the 41% of large companies that reported a rise in their hedging against exchange rate risks. Micro-enterprises reported no significant increases in their use of risk mitigation tools. Increased No change Decreased Not applicable Sample: all interviewed companies from Taiwan Source: Atradius Payment Practices Barometer October 2011 Large and medium/large firms reported the biggest rises in risk mitigation Emphasising that Taiwanese companies are becoming more diligent on their trade risks, the rising use of checking buyer creditworthiness was illustrated at an industry level. 52% of financial services firm reported an increase in this risk mitigation tool, as well as 44% and 43% of wholesale/retail/distribution and manufacturing firms respectively. The financial services industry also reported the highest increase (45% of respondents) in the use of monitoring a buyer s credit risk. Also worthy of note was the 40% of wholesale/retail/distribution firms that recorded an increase in their dunning. 12

13 4 CusTOmers Payment Behaviour 4 Payment durations averaged 35 days 33% of receivables fell overdue. 7% (domestic) and 4.7% (foreign) became delinquent Insufficient funds was considered the primary reason for payment delays 4.5% and 4.3% respectively of domestic and foreign receivables were not collected 4.1 Average payment durations and average payment delays Payment waiting times averaged 35 days Taiwanese companies received their payments in an average duration of 35 days, the longest overall waiting time in the surveyed Asia-Pacific countries. The national times were undoubtedly skewed by the protracted payment durations experienced by the largest two company sizes (see below). Domestic payment durations averaged 35 days, and foreign payments were received in an average 37 days, in each case 2 days sooner than the terms set. Average payment times were skewed by larger firms Analysed by business size, micro-enterprises (28 days domestic/33 days foreign) and small firms (29 days domestic/25days foreign) averaged the shortest payment terms. The 25 day foreign payment duration recorded by small companies was the sole time recorded by any Taiwanese business size to fall below the sector averages in the Asia-Pacific region. Taiwan s larger two business sizes operated a distinctly different payment protocol. Having set the longest terms (52 days domestic/51 days foreign), medium/large companies received payment in 49 days for domestic sales and 48 days for exports, three days earlier in each case. Large Taiwanese companies received payment in an average 41 days, also ahead of the requested terms (49 days domestic/43 days foreign). 4.2 Overdue B2B invoices (domestic/foreign) payment timing The overdue invoices frequency was just above the Asia-Pacific regional average The level of overdue invoices reported by Taiwanese respondents was just above the survey mean for the Asia-Pacific region (average: 30% domestic/32% foreign). An overall 33% of receivables went past due date. The 70% frequency with which domestic and foreign overdue invoices were paid within the first 30 days past due date was around the survey average. 7% of domestic B2B receivables reached the 90 day mark (delinquent) as unpaid, as did 4.7% of export invoices, in the context of the 6% survey mean indicating the domestic environment presented more of a collections challenge than the foreign buyers. Manufacturers waited longest for payments Taiwanese manufacturing firms waited longer than any other sector for payment, which flowed at an overall 43 days. This was marginally shorter than the times set (44days domestic/43 days foreign) by an industry that offered the highest percentage of trade credit. The promptest payment times (26 days domestic/28 days foreign) were experienced by the financial services industry. This sector was the most credit-averse and set the shortest payment times. What percentage of your domestic/foreign B2B invoices are overdue? 33 % 33 % B2B domestic customers B2B foreign customers 30 % 32 % 31 % 30 % Table of contents Executive summary Use of trade credit Credit management Cash inflow monitoring Survey design Taiwan Asia/Pacific Overall survey Sample: all interviewed companies (that sell products or services abroad) Source: Atradius Payment Practices Barometer October

14 4 CusTOmers Payment Behaviour Table of contents Executive summary Use of trade credit Credit management Cash inflow monitoring Survey design Domestic/foreign B2B overdue invoices - Payment is made between. Taiwan Asia/Pacific Overall survey Domestic Foreign Domestic Foreign Domestic Foreign percentage Small and large firms recorded a greater frequency of overdue invoices Overdue invoices were reported at the greatest frequency by Taiwan s small (average 36% domestic/37% foreign) and large customers (38% domestic/37% foreign). Micro-enterprises recorded an overdue invoices level (29% domestic/31% foreign) that fell just below the Asia-Pacific survey average. Nearly matching this was the medium/large company sector, which saw 33% of its domestic payments and 29% of foreign payments go past the due date days late days late days late days late Over 90 days late Sample: interviewed companies with overdue invoices Source: Atradius Payment Practices Barometer October 2011 (active on domestic and foreign markets) Over 50% of invoices fell overdue at financial services companies Analysed by size, financial services companies experienced overdue invoices with by far the highest frequency in the entire survey (51% domestic/54% foreign), despite being paid in the promptest average times of any surveyed Taiwanese industry. This translated into the highest level of defaults per industry (see below), which can be explained by a regular analyst observation that this industry is stymied by an over-supply of banks. Lesser proportions of overdue invoices were reported by wholesale/retail/distribution businesses (35% domestic/37% foreign), manufacturers (31% domestic/29% foreign), and services businesses (28% domestic/26% foreign). 14

15 4 CusTOmers Payment Behaviour 4.3 Main reasons for payment delays from customers What are the main reasons for payment delays by domestic B2B customers? Table of contents percentage Insufficient availability of funds Complexity of the payment procedure Executive summary Dispute over quality of goods delivered or service provided Goods delivered or services provided do not correspond to what was agreed in the contract Use of trade credit 23 Inefficiencies of banking system Incorrect information on invoice Credit management Taiwan Asia/Pacific Overall survey Sample: all interviewed companies Source: Atradius Payment Practices Barometer October 2011 Insufficient funds was the primary reason for payment delays According to Taiwan s surveyed companies, the key reason for their B2B payment delays was an insufficiency of available funds. 49% and 45% of respondents cited this as a major delay factor for domestic and foreign payments respectively, with a frequency above the Asia-Pacific regional average (48% domestic: 37% foreign). Complexity of the payment procedure was highlighted with the second highest frequency level (42% domestic/38% foreign). Two other delay determinants were cited with exactly the same frequency (34% domestic/31% foreign): these were goods not correspondent to order and disputes over the quality of goods. Micro- and medium/large companies cited customer liquidity for domestic payment delays Insufficiency of available funds was cited by 53% of micro-enterprises and 57% of medium/large businesses as the most important influence on domestic payment delays. The standout weighting recorded was the 64% of medium/large companies that underlined disputes over the quality of goods as a key export payment delay factor. 54% and 50% of small businesses respectively highlighted complexity of the payment procedure as the most important reason for domestic and export payment delays. Financial services firms heavily emphasised insufficient customer funding The highest sector weighting for a payment delay determinant came from the financial services sector. 70% of these respondents ranked inefficiencies of the banking system as a major domestic delay factor, and 56% cited this rationale for export payment hold-ups. 55% of wholesale/retail/distribution companies singled out complexity of the payment procedure as the most important reason for domestic payment delays. Disputes over the quality of goods was cited as a key foreign delay determinant by 52% of manufacturing companies and 50% of financial services firms. Cash inflow monitoring Survey design 15

16 4 CusTOmers Payment Behaviour Table of contents Executive summary Use of trade credit Credit management What are the main reasons for payment delays by foreign B2B customers? percentage 45 Dispute over quality of goods delivered 37 or service provided Complexity of the payment procedure Inefficiencies of banking system Insufficient availability of funds Goods delivered or services provided do not correspond to what was agreed in the contract Incorrect information on invoice Taiwan Asia/Pacific Overall survey Sample: all interviewed companies (that sell products or services abroad) Source: Atradius Payment Practices Barometer October 2011 Cash inflow monitoring Survey design 16

17 4 CusTOmers Payment Behaviour 4.4 Uncollectible receivables (domestic/foreign) The level of defaulting invoices was just above the Asia-Pacific mean 4.5% and 4.3% respectively of B2B domestic and foreign receivables were reported as uncollectable by Taiwanese respondents, very near to the regional (4%) average. This shows that significant success was met in the efforts to collect the 7% of domestic invoices that reached the delinquency stage, but that less collections success was recorded regarding the 4.7% of delinquent export invoices. Over the last six months, what percentage of the total value of your B2B receivables (domestic/foreign) were uncollectable? Domestic uncollectable B2B receivables Foreign uncollectable B2B receivables Large companies experienced a relatively higher level of defaults Large Taiwanese companies averaged a slightly higher percentage of uncollectable B2B receivables, averaging 5% for both domestic and foreign receivables. The weightings for each business size were generally compressed, with an identical level of default (4%) reported by micro-businesses and small companies. A higher frequency of uncollectable receivables was shown by medium/large firms (4% domestic/5% foreign). The financial services industry recorded the highest frequency of defaults: The highest level of uncollectable invoices (6%) was posted by Taiwan s financial services industry. This sector experienced a relatively higher volume of overdue invoices (average over 50%) than other industries, and reported a rise in its buyer monitoring in the first half of Table of contents Executive summary Use of trade credit 5 % 4 % 4 % 4 % 3 % 3 % Taiwan Asia/Pacific Overall survey Credit management Survey design Cash inflow monitoring Sample: all interviewed companies (that sell products or services abroad) Source: Atradius Payment Practices Barometer October % of the receivables of wholesale/retail/distribution respondents went into default. Services companies reported a 5% level of domestic defaults, and a lower 4% for export invoices. The default data reported by the manufacturing (4%) sector may indicate that the collections within this industry are of a relatively higher standard. 17

18 5 Cash Inflow Monitoring Table of contents Executive summary Use of trade credit Credit management Cash inflow monitoring PRACTICes 5 Cash inflow monitoring Respondents posted an average 59 day DSO, 7 days over the regional mean Taiwan s DSO figure rose by almost 10 days during the first half. 5.1 Average Days Sales Outstanding (DSO): first half 2011 What is your company s average DSO (Days Sales Outstanding) for the first half of 2011? Taiwan 59 Asia/Pacific 52 Overall survey 50 Taiwanese companies averaged a 59 day DSO, above the regional and survey means Taiwanese respondents posted an average 59 day DSO, 7 days above the 52 day Asia-Pacific regional average (overall survey mean: 50 days). Taiwan s DSO was around 6 days longer than the figure for China and Japan, but will have been significantly raised by the DSO of the financial services industry. Medium/large companies posted the highest DSO by size: Respondents in the medium/large size segment recorded the highest DSO, averaging days. This was 26 days over the Asia- Pacific sector average, indicating that there is significant room for improvement in this business cross-section. The figures for micro-companies, small enterprises and large businesses were 48 days, 56 days and 59 days respectively. The last of these will have been reduced by the use of early payment discounts. average days Sample: all interviewed companies Source: Atradius Payment Practices Barometer October 2011 The financial services sector generated the highest DSO of the surveyed industries: By industry, the highest DSO (average 87 days) was experienced by the financial services industry. This large DSO reflects poorly on the collections efficiency within financial services firms, and might have been exceeded but for relatively frequent use of early payment discounts. Respondents in the manufacturing (58 days), wholesale/retail/distribution (54 days) and services sectors (51 days) sectors recorded DSO slightly above the Asia-Pacific means for these industries. Survey design 18

19 5 Cash Inflow Monitoring 5.2 DSO trend over the past year Has your company s average DSO changed compared to the same period a year ago? Table of contents percentage Taiwan Asia/Pacific Overall survey Executive summary Increase No change Decrease Sample: all interviewed companies Source: Atradius Payment Practices Barometer October 2011 Taiwan s DSO rose by nearly 10 days during the first half of 2011 Taiwan s average DSO during the first half of 2011was relatively unstable based on respondents feedback. This showed that the average DSO rose by 10 days during the 6 month period, indicating that collections times were lengthening. 32% of the Taiwanese companies surveyed recorded an increase in their DSO, significantly above the 23% survey average. 10% of respondents DSO decreased, 58% remained unchanged. Greece, Indonesia, China, Spain and Poland were the only surveyed countries to report lower rates of respondents with unchanged DSO. Less than 50% of medium/large and large company DSO was unchanged Noticeably significant levels of change in DSO during the first half of were reported by medium/large and large companies (average 46% and 43% of DSO remained unchanged). 35% of the respondents from both business sizes experienced an increase in DSO and 19% and 22% respectively experienced decreases. The most stable DSO was posted by micro-enterprises (23% increase/2% decrease/75% unchanged). Use of trade credit Credit management Survey design Financial services companies reported very unstable DSO Taiwan s financial services industry recorded by far the highest frequency of DSO change among the four surveyed sectors. 47% of this industry s respondents DSO increased in the first half of this year, while 20% decreased. This left 33% of respondents with an unchanged DSO. The percentage of unchanged DSO for the wholesale/retail/distribution, manufacturing and services industries was 53%, 57% and 76% respectively, as a consequence of 36% 31% and 21% increases, and 11%, 12% and 3% decreases. Cash inflow monitoring 19

20 6 Survey Design Table of contents Cash inflow monitoring Survey design Executive summary Use of trade credit Credit management Survey background Atradius conducts regular surveys of corporate payment across a range of countries; its findings published in the Atradius Payment Practices Barometer. From its inception in 2006, when 1,200 companies from six European countries were interviewed for their views of their business partners payment, the twice yearly Atradius Payment Practices Barometer has grown in scope each year. 6.2 Survey objectives The 10th edition of the Atradius Payment Practices Barometer addresses the following research questions: Use of trade credit Annual B2B sales (domestic/foreign): % split sales made on a cash basis/credit terms B2B credit sales: % split domestic/foreign customers Trade credit supply determinants Credit management Average payment terms (domestic/foreign) granted to customers Payment terms determinants Discounts for early payment of invoices (acceptance rate from customers) 6.3 Structure of the survey Determining the appropriate company contact for accounts receivable management Ascertaining the interviewed company s industry and size Ascertaining the industries and countries the company does business with Assessing the extent to which survey respondents use trade credit in their B2B transactions 6.4 Survey scope Basic population Companies from 27 countries were monitored: Australia, Austria, Belgium, Canada, China, Czech Republic, Denmark, France, Germany, Great Britain, Greece, Hong Kong, Hungary, Indonesia, Ireland, Italy, Japan, Mexico, the Netherlands, Poland, Singapore, Slovakia, Spain, Sweden, Switzerland, Taiwan and USA The appropriate contacts for accounts receivable management were interviewed Selection process Sample - Internet survey: companies were selected and contacted by use of an international internet panel. At the beginning of the interview, a screening for the In the second survey of 2011 (the 10th in the series) approximately 5,400 companies from 27 countries worldwide (Australia, Austria, Belgium, Canada, China, Czech Republic, Denmark, France, Germany, Great Britain, Greece, Hong Kong, Hungary, Indonesia, Ireland, Italy, Japan, Mexico, the Netherlands, Poland, Singapore, Slovakia, Spain, Sweden, Switzerland, Taiwan and USA) have been surveyed. Current use of credit management tools Trend in the use of credit management tools (overtime comparison) Average payment durations and payment delays (domestic/ foreign) at country level % of overdue B2B invoices and payment timing from customers Main reasons for payment delays from customers Uncollectable receivables (domestic/foreign) Cash inflow monitoring Average DSO at country level DSO trend over the past year Focusing on the main credit management in each country surveyed Focusing on the following topics: customers payment cash inflow monitoring (current DSO and its trend) appropriate contact and for quota control was conducted n=5,399 persons were interviewed in total (approx. n= persons per country) In each country, a quota was maintained according to three rough industry categories and two classes of company size As to Spain, the sample has been extended with the inclusion of the businesses with turnover under 1 million euro Interview: Web-assisted personal interviews (WAPI) of approx. 12 minutes duration

21 6 Survey Design 6.5 Sample overview Country (n=5,399) n % Table of contents Belgium % Germany % Italy % The Netherlands % France % Spain % Executive summary Sweden % Denmark % Great Britain % Ireland % Austria % Greece % Use of trade credit Switzerland % Poland % Czech Republic % Hungary % Slovakia % Australia % Credit management China % Hong Kong % Taiwan % Singapore % Indonesia % Japan % USA % Canada % Mexico % Turnover (n=5,399) n % Micro enterprise 1, % Small enterprise 1, % Medium/Large enterprise 1, % Large enterprise % Economic sector (n=5,399) n % Manufacturing 1, % Cash inflow monitoring Survey design Wholesale/Retail/Distribution 1, % Services 2, % Financial services % Where a single answer is possible, it may occur that the results are a percent more or less then a 100% when adding the results up. This is the consequence of rounding off the results. We have chosen not to adjust the results so the outcome would fit to a 100%, with the purpose of representing the individual results as exact as possible. 21

22 Table of contents Executive summary Use of trade credit Credit management Cash inflow monitoring Survey design Legal disclaimer Survey results and content were based on data collected and tabulated by Heliview Research. This report is provided for information purposes only and is not intended as a recommendation as to particular transactions, investments or strategies in any way to any reader. Readers must make their own independent decisions, commercial or otherwise, regarding the information provided. While we have made every attempt to ensure that the information contained in this report has been obtained from reliable sources, Atradius is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this report is provided as is, with no guarantee of completeness, accuracy, timeliness or of the results obtained from its use, and without warranty of any kind, express or implied. 22 In no event will Atradius, its related partnerships or corporations, or the partners, agents or employees thereof, be liable to you or anyone else for any decision made or action taken in reliance on the information in this report or for any consequential, special or similar damages, even if advised of the possibility of such damages.

23 Your contact at Atradius Matthew Cockerill Country Manager 4306 Central Plaza 18 Harbour Road Wanchai Hong Kong Phone: (852) Mobile: (852) Web: Executive summary Survey design Cash inflow monitoring Credit management Use of trade credit Table of contents 23

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