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

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

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

Country report JAPAn Table of contents 1 Executive summary 1.1 Introduction...4 1.2 Conclusions...4 1.3 Core results Japan... 5 2 Use of trade credit 2.1 Sales on credit terms (domestic/foreign)...6 2.2 Trade credit supply determinants...7 3 Credit management 3.1 Average payment terms (domestic/foreign)....8 3.2 Payment terms determinants...9 3.3 Early payment discounts...10 3.4 Use of credit management tools: first half 2011...10 3.5 Trend in the use of credit management tools...12 4 4.1 Average payment durations and average payment delays...13 4.2 Overdue B2B invoices (domestic/foreign) Payment timing...14 4.3 Main reasons for payment delays from customers...15 4.4 Uncollectable receivables (domestic/foreign)...17 5 Cash inflow monitoring 5.1 Average Days Sales Outstanding (DSO): first half 2011...18 5.2 DSO trend over the past year...19 6 Survey design 6.1 Survey background....20 6.2 Survey objectives...20 6.3 Structure of the survey....20 6.4 Survey scope...20 6.5 Sample overview...21 legal disclaimer...22 your contact at Atradius....23 Executive summary Use of trade credit Credit management Cash inflow monitoring Survey design 3

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 Japan, 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 Japanese 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 resultant incidence of late or non-payment, and the actions taken to mitigate payment risks. The October 2011 Payment Practices Barometer is available on the Atradius website at www.atradius.com. Use of trade credit Credit management Cash inflow monitoring Survey design 1.2 Conclusions Senior Underwriter for Japan and SE Asia, Michael Frigo, commented: There has always been a clear moral obligation towards honouring payment in Japan together with a high degree of business ethics which contribute to a very limited occurrence of protracted default. This approach is also underpinned by banks, which offer strong support to struggling companies. However, the recent earthquake and Fukushima nuclear accident have highlighted the issue of potential unforeseen risks when trading internationally and immediately following the disaster we witnessed some rescheduling of payments to help address the disruption. More recently due to the effects of the earthquake coupled with the global economic issues, we have seen an increase in the rates of insolvency in some sectors although, overall, our experience of payment default has remained low in Japan. Japanese companies were the least active of all across the survey in selling on credit terms, especially in an export context, evidencing an aversion to risk that was unsurpassed by any other surveyed country. Just 30% of Japanese B2B sales were made using trade credit, with 80% of these sales involving domestic buyers, mirroring a caution that will have been exacerbated by the contractions of the Japanese economy at certain times in recent years. The reasons provided by Japanese respondents for their decisions to extend trade credit were significant in this respect. The highest prioritisation was accorded to the creation of long-term sales relationships, which was selected by almost half of the respondents as the key driver of their decisions to extend credit. This mirrored the desire of Japanese companies to build deeper trade relationships. The desire to build trade relationships was the most frequently reported determinant, cited again by around half of respondents, for average payment terms that were matched for length only by Taiwan among the surveyed countries. their longest by the manufacturing and financial sectors. This, and data showing that an average 26% of foreign receivables still went past due date, indicated the greater difficulties for Japanese respondents in securing foreign payments and hence their reluctance to sell on credit to foreign buyers. Several strands of evidence indicated that Japanese companies are prepared to accept this situation. Even in the face of the low liquidity among buyers cited as a major reason for payment delays, Japanese businesses were extremely reluctant to offer early payment discounts for their B2B receivables. In addition, the use by businesses of credit management tools came in below the regional averages. However, the key payment receipt signals were in line with, or slightly better than those of the Asia-Pacific region. 3% of invoices were uncollectable, matching the survey average, but 1% was lower than the Asia-Pacific mean. Respondents DSO was also just one day higher than the 52 day Asia Pacific average, and has stayed at the 2010 level for 98% of surveyed Japanese companies. Mention should be given to some notable patterns observed among Japan s micro-companies. This segment was the most risk-averse of all, making 23% of their B2B transactions on credit, and only 2% of their receivables were uncollectable, the lowest of any size of Japanese business. Key industry trends noted in the survey included a 69 day average domestic payment terms offered by Japan s financial sector. This was more than double the mean for this industry in the overall survey, helping to bring overdue invoices down to a remarkable 3% domestic and 5% foreign and uncollectable invoices to as low as 1% for domestic business. In terms of customer, Japanese businesses were faced with two differing scenarios. Despite the 5 day longer average terms extended on domestic receivables, these were paid an average 37 days before export payments, which were reported at 4

1 Executive summary 1.3 Core results Japan 30% of Japanese sales were made using trade credit, the lowest percentage in the survey. An average 80% of B2B credit sales involved domestic customers. Japan s micro-companies were shown to be the most riskaverse of all the business sizes, selling just 23% of their B2B transactions on credit. Creating long-term sales relationships with customers was prioritised by the greatest proportion of companies (49%) as a determinant of trade credit. A lower priority was accorded to using trade credit as a sales promotion tool, and granting credit as a source of short-term finance to customers. Japan s 38 day average payment terms was, along with Taiwan, the longest among the surveyed Asia Pacific countries. However more caution was shown with regard to foreign terms, which averaged 33 days. B2B payment terms offered by Japanese respondents were directly linked to their size. The longest terms were offered by the largest companies, and the shortest by the smallest businesses. Building trade relationships was the most reported payment terms determinant, cited by around half of the Japanese respondents. A high, but lesser priority was given to company standard payment terms and credit capacity of the customer. 15% of Japanese respondents offered discounts for early payment of invoices, the second lowest in the survey, with only Swedish respondents less inclined to discounts early payment. The averages for Asia Pacific and the wider survey were 48% and 40% respectively. Where discounts were available, they were taken advantage of by 30% of domestic customers and 21% of foreign customers. Japan s use of credit management tools mainly fell below regional averages. Less than 30% reported using the options of checking a buyer s credit worthiness, active credit management, checking a buyer s track record and other risk mitigation techniques. Japanese businesses received domestic payments much earlier (average 25 days) than export payments, for which the 62 day average was the highest in the survey. Relatively few Japanese invoices fell overdue, especially domestic B2B invoices (average 18%). For the Asia- Pacific region and overall survey 30% and 31% of invoices respectively. 26% of foreign receivables went past due date. A range of determinants for B2B payment delays were reported by Japanese respondents, with the greatest prioritisation given to insufficient availability of funds. This was cited by 42% for domestic delays and 37% for foreign delays. Incorrect information on the invoice was also referred to as a key reason for domestic delays. Assisted by the relatively lower level of invoices which became overdue, uncollectable Japanese invoices stood at 3%, matching the survey average. The days sales outstanding (DSO) was just one day higher than the 52 day Asia Pacific survey average. 7 7 Japan s DSO trend in the survey was the most stable of the 27 countries surveyed. 97% of respondents reported no change from 2010.Financial services respondents were the most likely to have experienced an increase in their DSO. Use of trade credit Credit management Cash inflow monitoring Survey design Table of contents Executive summary 5

2 use of trade credit Table of contents Executive summary Use of trade credit Credit management 2 Use of trade credit 30% of Japanese sales were made using trade credit 80% of credit sales were to domestic customers Japan s micro-companies are the most risk-averse Creating long-term sales relationships with customers drove credit sales 2.1 Sales on credit terms (domestic/foreign) Survey respondents in Japan least likely to use trade credit The average 30% of B2B sales that were reported to have been made on credit terms by Japanese companies was the lowest in the survey. The second lowest percentage of respondents offering trade credit was Belgium (42%). This extremely risk-averse stance may be linked to the protracted sluggishness of Japan s economy, and those of many Western markets into which its goods are sold. The risk aversion was heavily skewed towards foreign B2B customers. An average of 80% of credit-based sales involved domestic customers, and 48% of respondents offered no credit terms at all to foreign customers. What percentage of the total value of your annual B2B sales (domestic and foreign) are made on a cash basis/credit terms? 70 % 30 % 52 % 48 % Cash sales 43 % Credit terms 57 % was also exhibited by small and large Japanese respondents (29% and 31% of sales respectively). The highest level of appetite for extending credit was shown by medium/large enterprises (average 40%). However 34% of the trade credit from medium/large enterprises was provided to foreign customers, a higher level than large and small enterprises (27% and 20% respectively). Wholesale/retail/distribution and services respondents used trade credit most actively The least receptive industries to the use of trade credit were Japan s wholesale/retail/distribution companies and its service businesses, with 27% and 28% of respondents selling on credit. The financial sector respondents (47%) were the most inclined to sell on credit. Appetite for export credit on B2B sales was at its greatest among Japanese respondents in the manufacturing and financial services industries (average 29% and 25% of credit sales to foreign customers). Japan s services sector extended trade credit on only 13% of its sales to foreign customers. What percentage of the total value of your B2B credit sales are to domestic/foreign customers? B2B domestic customers B2B foreign customers Cash inflow monitoring Survey design Japan Asia/Pacific Overall survey Sample: all interviewed companies Source: Atradius Payment Practices Barometer October 2011 Japan s smallest companies proved to be the most risk-averse Japanese micro-enterprises offered trade credit less frequently than their bigger counterparts, consistent with the more riskaverse stance that tends to prevail among smaller companies globally (shown by the overall survey: 51% of micro-enterprise sales involved cash). Micro-sized respondents made an average 23% of their B2B sales on credit, but this was exclusively targeted at domestic customers. A low propensity for using trade credit 80 % 20 % 66 % 34 % 75 % 25 % Japan Asia/Pacific Overall survey Sample: interviewed companies with credit sales Source: Atradius Payment Practices Barometer October 2011 6

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 16 19 19 46 49 50 Executive summary To allow customers time to confirm the quality of the product before payment As a source of short term finance 17 20 18 15 14 16 Use of trade credit A push to develop sales relationships drives Japan s use of trade credit The desire to establish long-term sales relationships with customers was by far the most important determinant for selling on credit cited by Japanese businesses. 49% of respondents accorded the greatest priority to this reason, very much in line with the wider Asia-Pacific and overall survey (average 50% and 46% respectively). Other factors were much less frequently considered to be key determinants. These include factors such as a sales promotion tool (19% of respondents) and as a source of short-term finance to customers (17%), Confirming the quality of the product before payment was cited by 15% of Japanese respondents as a key driver of sales made on credit. Japan s smallest companies extend credit to deepen relationships 56% of Japan s micro-enterprises reported that they offered trade credit to establish long-term sales relationships with customers, which may be seen as a clue to the desire to expand. This prioritisation was higher than in any other sector, where it was reported by 44% of large companies, 46% of small companies and 44% of medium/large businesses. Small Japanese companies emerged as the most active proponents of two other key trade credits determinants. 26% and 22% of respondents of this size category cited as a sales promotion tool and confirming the quality of the product before payment as the most important determinant for selling on credit. Japan Asia/Pacific Overall survey Sample: interviewed companies with credit sales Source: Atradius Payment Practices Barometer October 2011 that rank respective aspect most important Manufacturing and services keenest on sales relationships rationale Japan s manufacturing and services companies were slightly keener to use trade credit as an expansion tool than other industries. An average 52% and 50% respectively of these respondents cited long-term sales relationships with customers as their key motivation for using trade credits more frequently than wholesale/retail/distribution and financial services respondents (46% and 44%). Two other trends stood out as key drivers in the of Japanese businesses in their use of credit. 30% of wholesale/ retail/distribution sector companies highlighted trade credit as an effective sales promotion tool, while 33% of financial services companies cited source of short-term finance. Credit management Cash inflow monitoring Survey design 7

3 credit management Table of contents Executive summary Use of trade credit Credit management 8 Cash inflow monitoring Survey design 3 Credit management Japanese payment terms were the longest among the surveyed Asia-Pacific countries Payment terms offered by Japanese respondents were directly linked to their size Trade relationships was the most reported payment terms determinant Use of early payment discounts in Japan amongst the lowest in the survey Japan s use of credit management tools mainly below regional averages 3.1 Average payment terms (domestic/foreign) What payment terms does your company set for its domestic/foreign B2B customers? Japan Asia/Pacific Overall survey No Asian country offered longer payment terms than Japan When compared to their peers in the Asia-Pacific region, Japanese respondents offered relatively long payment terms, averaging 37 days. These terms were matched only by Taiwan in the Asia-Pacific region, and were significantly longer than the 26-30 day survey mean. Japanese respondents average payments terms were more than 5 days longer for domestic sales than for foreign sales (38 days domestic: 33 days foreign), tying in with their more cautious approach to export credit. Domestic Foreign Domestic Foreign Domestic Foreign percentage Payment terms offered by Japanese respondents were directly linked to their size A strong symmetry was found in the analysis by size. The longest payments terms in Japan were offered by the largest companies, which extended 42 and 39 days to their domestic and foreign customers respectively. The figures for medium/large, small and micro-enterprises were 40 days, 36 days and 34 days respectively for domestic payment terms, and 31 days, 29 days and 30 days respectively for export payments. This demonstrates a clear link to company size in Japan. 69 18 8 5 15 1 7 81 12 5 3 73 19 5 3 78 12 7 3 71 20 6 3 1-30 days 31-60 days 61-90 days Over 90 days average days Sample: interviewed companies (active on domestic and foreign markets) Source: Atradius Payment Practices Barometer October 2011 Manufacturing and financial services respondents offered the longest payment terms The domestic payment term offered by Japan s financial services sector (average 69 days) stood out, representing more than double the mean for this industry in Asia-Pacific and the overall survey (33 day average for both). Payment terms extended by Japan s manufacturing respondents were also significantly higher than the overall survey mean of 39 days. This industry offered 46 and 43 day terms to its domestic and foreign customers, mirroring its longer cash conversion cycles. The most cautious payment term was the 22 day domestic terms offered by wholesale/retail/distribution respondents. 38 33 31 33 34 35

3 credit management 3.2 Payment terms determinants Top 3 payment terms determinants (domestic/foreign) Table of contents percentage Japan Trade relationship with the customer Company standard payment terms Credit capacity of the customer 39 41 41 41 49 53 Executive summary Asia/Pacific Trade relationship with the customer Company standard payment terms Credit capacity of the customer 23 27 33 37 46 45 Use of trade credit Overall survey Trade relationship with the customer Company standard payment terms Credit capacity of the customer 36 36 39 42 49 47 Credit management B2B domestic customers B2B foreign customers Sample: interviewed companies (active on domestic and foreign markets) Source: Atradius Payment Practices Barometer October 2011 Trade relationships were the most reported payment terms determinant The key rationale among Japanese businesses in setting their payments terms was almost identical to the Asia Pacific survey mean. 52% and 49% respectively of respondents cited trade relationship with the customer as their key domestic and foreign payment terms determinant, compared to the overall survey findings (49% domestic and foreign). 39% and 40% of respondents prioritised company standard payment terms in setting domestic and foreign payments terms respectively, while a 40% and 41% respectively cited credit capacity of the customer. The response in both cases was again very near to the Asia-Pacific mean. Several other responses are worth noting. The availability of credit insurance cover was cited as a key determinant in establishing domestic and foreign payment terms by 21% and 31% of Japanese companies respectively. The determinant accorded the least priority was government regulations (8% domestic/4%foreign). Little variation shown by size Headed by trade relationships, the weightings above were mainly replicated throughout the four sectors. Also of note was that just 4% of medium/large enterprises accorded importance to competition as a key export terms determinant. Industry standard terms was prioritised by 30% of micro-companies and 24% of small enterprises for domestic sales. Credit availability prioritised for wholesale/retail/ distribution exports The selection of trade relationship with the customer and company standard terms as payment terms determinants was significantly weighted by respondents in all four sectors. Aside from this, 50% of wholesale/retail/distribution respondents cited credit availability as a key foreign determinant. Cash inflow monitoring Survey design 9

3 credit management Table of contents Executive summary Use of trade credit Credit management 3.3 Early payment discounts Early payment discount levels in Japan one of the lowest in the survey Compared to the Asia Pacific and wider survey averages (48% and 40% respectively) the use of early payment discounts by Japanese respondents was extremely low. Only 15% of respondents offered discounts for early payment of invoices, a level that was the second only to Sweden (11%). This suggests that Japanese companies generally favour full payment over fast payment. However with the lowest rate of late payments, motivating early payment is not needed. 30% of domestic customers and 21% of foreign customers who were offered early payment discounts took advantage of them. Does your company discount early payment of invoices? 15 % 85 % 48 % 52 % 40 % Yes 60 % Japan Asia/Pacific Overall survey Sample: all interviewed companies Source: Atradius Payment Practices Barometer October 2011 No A much greater willingness to discount was exhibited by large enterprises (average 17%), small enterprises (20%) and small businesses (22%). Customers of small and large companies were the most likely to take advantage of the discounts, 19% in each case. Just 4% of customers of micro-businesses took advantage of early payment discounts. Japanese manufacturers were more inclined to discount early payment of their invoices than other industries Given that manufacturers experience longer than average cash conversion cycles, it was a little surprising that only 18% of surveyed Japanese manufacturers offered early payment discounts. However, the percentage of companies offering discounts fell to 16%, for wholesale/retail/distribution companies, 14% for financial services companies and 11% for services companies. None of the customers of services companies took advantage of early payment discounts What percentage of your domestic/foreign B2B customers take advantage of the early payment discount? 15 % 12 % B2B domestic customers B2B foreign customers 30 % 28 % 26 % 26 % Cash inflow monitoring Survey design Micro-enterprises showed the lowest propensity to offer early payment discounts Just 7% of the surveyed Japanese micro-enterprises offered early payment discounts, reiterating that this category of business lacks the business scope to accept anything but full payment. 3.4 Use of credit management tools: first half 2011 Japan s use of credit management tools mainly fell below regional averages Japanese businesses appeared to be among the least inclined in the region to use the range of credit management tools at their disposal. Only in one regard did more than one third of Japanese survey participants report using a regular form of risk mitigation: Japan Asia/Pacific Overall survey Sample: interviewed companies that discount early payment (that sell products or services abroad) Source: Atradius Payment Practices Barometer October 2011 this concerned the 40% of respondents that responded that they sell on cash terms. Less than 30% were observed to use the options of checking a buyer s credit worthiness, active credit management, checking a buyer s track record, reducing reliance on a single buyer, requesting secured forms of payment, monitoring buyer credit risk and using credit insurance. 10

3 credit management Larger companies check buyer credit worthiness and request secured payments By size, the most preferred credit management tools were checks on a buyer s credit worthiness (44% of medium/large respondents), and requesting a secured form of payment (44% of large companies). How do you protect your business against payment default? Retaining a collections agency was seen as a low priority Retaining a collections agency was a lower priority. Of the four major business sectors, financial services respondents (22%) were most inclined to use this credit management option. Table of contents Executive summary percentage Sell on cash terms Check buyer s credit worthiness 35 34 34 40 40 38 Use of trade credit 31 Check buyer s track record Monitor buyer s credit risk 31 30 37 35 42 Credit management Active credit management (credit checks, dunning) Reserve against bad debts Reduce reliance on a single buyer 19 23 22 22 27 29 27 36 35 Use credit insurance Request secured forms of payment Self insure Retain a collections agency 7 12 14 19 22 18 20 18 19 27 31 33 Cash inflow monitoring Survey design Japan Asia/Pacific Overall survey Sample: all interviewed companies Source: Atradius Payment Practices Barometer October 2011 11

3 credit management Table of contents Credit management Executive summary Use of trade credit Cash inflow monitoring Survey design 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? percentage Checking of buyer s credit worthiness 21 61 4 14 Dunning 17 60 6 17 Monitoring of buyer s credit risk 16 67 5 12 Hedging against exchange rate risk 11 53 4 34 Use of self insurance 8 51 5 37 Use of credit insurance 6 52 4 37 Use of secured forms of payment 6 76 2 16 Use of outsourced collections 5 50 5 40 Use of early payment discounts 4 60 4 32 Japanese businesses showed no significant uptake of credit management tools in the first half of this year Three credit management tools showed significantly increased usage in Asia Pacific (35% or more of the respondents) during the first half of 2011: monitoring buyer risks, checking buyer credit worthiness, and using secured forms of payment. However no Japanese companies reported using these techniques at a frequency above the regional average compared to the second half of 2010. Increased No change Decreased Not applicable Sample: all interviewed companies from Japan Source: Atradius Payment Practices Barometer October 2011 Buyer credit worthiness was an area of increasing diligence By size, an increase in checking buyer credit worthiness was recorded by 26% of medium/large companies, 27% of large companies and 29% of medium/large companies. The financial sector lifted its diligence in three areas Japan s financial services industry showed a noteworthy uptake in its H1 2011 usage of three tools: monitoring buyer risks and checking buyer credit worthiness (56% each) and using secured forms of payment (44%). 12

4 Customers Payment Behaviour 4 Japanese businesses received domestic payments much earlier than export payments The level of overdue invoices were below regional average, especially for domestic Payments most often delayed by customer illiquidity and incorrect invoicing Japanese uncollectable invoices stood at 3%, the survey average 4.1 Average payment durations and average payment delays Japanese businesses experienced a 37 day domestic and foreign payment disparity Looked at purely from the domestic side, payment durations reported by Japanese respondents were prompt, being received in an average of 25 days, well in advance of the average 38 day payment due date. However payments from foreign customers averaged 62 days, the slowest of the surveyed countries. This tardiness emphasizes Japanese respondents reluctance to offer credit terms to foreign buyers. Table of contents Executive summary Use of trade credit Businesses of all sizes experienced consistent domestic payment times There was a relatively high level of consistency in the payment durations reported by Japanese companies of every size for their domestic sales. Micro-enterprises reported the promptest payments (average 23 days), and large companies (27 days) the longest payment durations. Foreign payments to micro Japanese companies took an average 100 days, which seems likely to have been skewed by a small sample of micro companies offering credit to foreign buyers. Credit management Foreign payments skewed for manufacturing/ financial services Only wholesale/retail/distribution and service companies (average 45 days and 56 days respectively) fared better in respect to the poorer-performing export payments plaguing Japanese companies. 71 day and 82 day durations were recorded by Japan s manufacturing and financial sectors. Replicating the business size trends, every Japanese industry surveyed was characterised by prompt payment for domestic sales, ranging from an average 22 days for service companies to 30 days for the manufacturing companies. Cash inflow monitoring Survey design 13

4 Customers Payment Behaviour Table of contents Executive summary Use of trade credit Credit management Cash inflow monitoring Survey design 4.2 Overdue B2B invoices (domestic/foreign) Payment timing Japan s proportion of overdue invoices lower than regional/survey averages The overdue invoices experience of Japanese businesses reflects a stronger payment culture than that of the Asia-Pacific region overall. 18% of respondents domestic invoices went overdue, far below the 30% and 31% figures shown in the Asia-Pacific region and the overall survey means. Just 6% were paid after 90 days (delinquent). Despite the much longer export payment durations, no more than 26% of foreign sales were reported as overdue. What percentage of your domestic/foreign B2B invoices are overdue? 18 % Overdue invoices worst for medium/large company export sales The worst overdue invoice experience was reported by Japan s medium/large respondents (an average 34% for foreign payments). This was 1% higher than the Asia-Pacific regional mean for this size company. By contrast, the level of foreign overdue invoices reported for micro businesses was just 3%, which is likely to reflect the greater caution among these companies with regard to payments. Domestic/foreign B2B overdue invoices - Payment is made between. Japan Asia/Pacific 26 % Overall survey B2B domestic customers Domestic Foreign Domestic Foreign Domestic Foreign B2B foreign customers 30 % 32 % 31 % 30 % Japan Asia/Pacific Overall survey Sample: all interviewed companies (that sell products or services abroad) Source: Atradius Payment Practices Barometer October 2011 percentage Low overdue invoices in financial services/ manufacturing sectors Japanese companies surveyed in the financial services sector produced an outstanding overdue invoices performance, with averages of just 3% of domestic and 5% of foreign invoices overdue in a region generating a 36% average for domestic and foreign invoices overall. Japanese manufacturing companies also outperformed all bar their Danish peers, reporting average of 23% and 19% for domestic and foreign overdue invoices respectively. 52 23 17 4 4 44 22 24 6 4 49 19 19 6 7 49 17 21 7 6 51 19 18 6 6 52 17 19 6 6 1-15 days late 16-30 days late 31-60 days late 61-90 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) 14

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 Incorrect information on invoice 19 29 34 42 48 60 Executive summary Complexity of the payment procedure Goods delivered or services provided do not correspond to what was agreed in the contract 17 23 24 27 32 35 Use of trade credit Dispute over quality of goods delivered or service provided Inefficiencies of banking system 19 20 18 21 29 30 Credit management Japan Asia/Pacific Overall survey Sample: all interviewed companies Source: Atradius Payment Practices Barometer October 2011 Payments were most delayed by customer illiquidity and incorrect invoicing Japanese respondents reported a range of reasons for B2B payment delays. The most frequently cited by were: 42% for domestic delays and 37% for foreign delays - given to insufficient availability of funds. Incorrect information on the invoice was also prioritised as a key reason for domestic delays by 40% of Japanese respondents (regional average 29%) and by 30% as a key driver for foreign payment delays (regional: 32%). Complexity of the payment procedure emerged as the most important reason for all surveyed Asia-Pacific respondents, and Japanese respondents highlighted it as a key domestic factor by 27% of respondents and a key factor in foreign delays by 25% of respondents). Disputes over goods delayed few payments to micro-businesses Japanese micro-enterprises were not inclined (0% of respondents) to cite the quality of goods as a reason for domestic payment delays. In this context, they were also less likely (9%) to highlight goods or services delivered failing to correspond with the contract (other size businesses: minimum 27%). Insufficient funding was prominantly highlighted by two industries Analysed by sector, insufficient availability of funds was cited as the key reason for payment delays by 50% of financial services respondents and 46% of wholesale/retail/distribution respondents. Cash inflow monitoring Survey design 15

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 40 Insufficient availability of funds 37 42 36 Complexity of the payment procedure 45 37 33 Incorrect information on invoice 32 24 33 Dispute over quality of goods delivered 37 or service provided 26 31 Inefficiencies of banking system 44 34 Goods delivered or services provided 24 do not correspond to what was agreed 32 in the contract 22 Japan 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

4 Customers Payment Behaviour 4.4 Uncollectable receivables (domestic/foreign) Japanese uncollectable invoices matched the survey mean Aligning with the survey average, an average 3% of domestic and foreign receivables were reported as uncollectable by respondents in Japan. This was one percentage point lower than the figures for the Asia-Pacific region, which averaged 4% for domestic and foreign uncollectable invoices. Japan s collections performance in the regional context may be a result of the relatively lower level of invoices which became overdue. 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 3 % 3 % 4 % 4 % 3 % 3 % Japan Asia/Pacific Overall survey Micro-enterprises reported the lowest level of uncollectable invoices Respondents from micro-enterprises recorded the best performance. Just 2% of their domestic and foreign B2B invoices were uncollectable. Larger enterprises, though they typically have more resources available to manage receivables, they also have more receivables to chase leaving greater opportunity for delay and default. This is reflected in the experience of Japan s medium/large companies, for whom over one third of foreign business invoices went overdue, and an average of 4% uncollectable, more than any other size of respondent. Financial services produced a notable performance Measured by industry, Japan s financial services sector collected all but 1% of their domestic B2B invoices. Just 1% were never collected, a situation which would seem to be underpinned by the small volume of receivables (average 3%) that went overdue. Manufacturing sector respondents reported a 4% average for uncollectable foreign invoices, despite a relatively low amount of overdue invoices (average 19%). Table of contents Executive summary Use of trade credit Credit management Survey design Cash inflow monitoring Sample: all interviewed companies (that sell products or services abroad) Source: Atradius Payment Practices Barometer October 2011 17

5 Cash Inflow Monitoring Table of contents Executive summary Use of trade credit Credit management Cash inflow monitoring PRACtices 5 Cash inflow monitoring Average DSO was just one day higher than the 52 day average for the Asia-Pacific region 98% of companies recorded no change in DSO in the first half of 2011 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? Japan 53 Asia/Pacific 52 Overall survey 50 The 53 day DSO was marginally higher than the Asia-Pacific average Influenced by their 62-day average delays in foreign B2B payments Japanese companies recorded an overall 53-day DSO for the first half of 2011. This figure will also have been influenced by very limited amount of early payment discounting and a relatively low use of credit management tools. In a regional context, Japan s DSO was just one day higher than the 52 day average for the Asia-Pacific region. Small enterprises reported the highest DSO Analysed by business size, Japan s small enterprises reported the highest DSO, averaging 71 days. This was significantly above the regional average for small enterprises of 56 days. All the other three size categories in Japan reported average DSO of less than 53 days. average days Sample: all interviewed companies Source: Atradius Payment Practices Barometer October 2011 Manufacturing sector DSO the longest by sector An average DSO of 62 days reported by Japanese manufacturing respondents was the highest by industry, comparing to regional and survey averages of 55 days and 54 days respectively. Among the key factors behind this outcome was the average 71 day duration for export payments for this sector and a relatively high proportion of foreign uncollectable receivables. The DSO for the wholesale/retail/distribution sector, (49 days), the services industry, (50 days), and the financial services sector, (51 days), all aligned tightly with regional averages. Survey design 18

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 Japan 2 97 1 Asia/Pacific 27 63 10 Overall survey 23 68 9 Executive summary Increase No change Decrease Sample: all interviewed companies Source: Atradius Payment Practices Barometer October 2011 Only 2% of companies recorded a DSO increase Japan s DSO trend in the survey was the most stable of the 27 countries surveyed. 97% of respondents reported no change in their DSO in the first half of 2011, while just 2% reported an increase, and 1% a decrease. Large enterprises most likely to have reported an increase in DSO By size, Japan s medium/large enterprises were the most likely to have experienced a change in their DSO (3%cited an increase, and 5% a decrease). Also of note was the 6% of large enterprises which reported an increase in DSO (94% reported no change). Among small Japanese businesses, 2% of respondents reported a DSO increase (98% no change). Use of trade credit Credit management Survey design Financial services sector recorded highest percentage of respondents whose DSO rose The greatest level of DSO change was observed among Japan s financial services sector: 11% of respondents reported an increase in their DSO, while 89% cited no change. In the wholesale/retail/distribution and manufacturing industry respondents, 3% and 2% respectively reported an increase in DSO (97% and 98% reported no change). Cash inflow monitoring 19

6 Survey Design Table of contents Cash inflow monitoring Survey design Executive summary Use of trade credit Credit management 20 6.1 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, 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 tenth 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, 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=145-215 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

6 Survey Design 6.5 Sample overview Country (n=5,399) n % Table of contents Belgium 168 3.1% Germany 210 3.9% Italy 208 3.9% The Netherlands 212 3.9% France 205 3.8% Spain 201 3.7% Executive summary Sweden 202 3.7% Denmark 201 3.7% Great Britain 210 3.9% Ireland 145 2.7% Austria 205 3.8% Greece 203 3.8% Use of trade credit Switzerland 192 3.6% Poland 203 3.8% Czech Republic 200 3.7% Hungary 209 3.9% Slovakia 201 3.7% Australia 194 3.6% Credit management China 215 4.0% Hong Kong 202 3.7% Taiwan 197 3.6% Singapore 207 3.8% Indonesia 201 3.7% Japan 207 3.8% USA 210 3.9% Canada 190 3.5% Mexico 201 3.7% Turnover (n=5,399) n % Micro enterprise 1,869 34.6% Small enterprise 1,692 31.3% Medium/Large enterprise 1,111 20.6% Large enterprise 727 13.5% Economic sector (n=5,399) n % Manufacturing 1,250 23.2% Cash inflow monitoring Survey design Wholesale/Retail/Distribution 1,335 24.7% Services 2,319 43.0% Financial services 495 9.2% 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

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.

Your contact at Atradius Motoaki Hoshino Country Manager Atradius Credit Insurance N.V. Shiroyama Trust Tower 30F 4-3-1 Toranomon, Minato-ku Tokyo 105-6030 Phone: +81 3 56 7307 E-Mail: motoaki.hoshino@atradius.co.jp Web: www.atradius.jp Executive summary Survey design Cash inflow monitoring Credit management Use of trade credit Table of contents 23

Atradius N.V. David Ricardostraat 1 1066 JS Amsterdam P.O. Box 8982 1006 JD Amsterdam The Netherlands Phone: +31 20 553 9111 Fax: +31 20 553 2811 www.atradius.com