As a global credit insurer, Coface is acutely aware of the amount of companies failing due to unpaid debts.
China is one of these markets - with non-performing loans up 97 per cent since 2011.
As a result, Coface has placed an A4 rating on the risk of businesses defaulting.
Australia's increasing business links to China can make SMEs, that wouldn't have traditionally thought of engaging in credit insurance, more vulnerable.
The security of knowing that your business is protected against non-payment, and having access to information on the credit quality of customers is invaluable.
Expanding in China can certainly still be done successfully, as long as business owners are diligent.
Chris Little, Coface's commercial director in Australia, offers these 10 tips for companies seeking to expand into China and other Asian countries:
- Clearly identify the entity you are dealing with. This can be challenging as there is no requirement in China for companies to lodge their financials with a regulatory authority
- Do not rely, as many companies do, on trade references conducted over the phone or via email
- Use a credit reference agency to gain deeper insight on the trade history of a potential customer
- Take out credit risk insurance to protect you against payment arrears or non-payment of invoices
- As part of this, use an experienced risk underwriter, such as Coface, to advise on setting of credit amounts for customers in different countries and stick to them
- Use an on-the ground agent to manage the relationship with partners as they will have a clear view of the local market and can pinpoint any existing or potential issues
- If a long-term client is suddenly delaying payment this could signal a cashflow problem in their business; it's important to be in regular communications to ensure payment is not further delayed
- Instil discipline with credit terms and the level of credit you are prepared to offer and do not be tempted to overtrade or offer extended credit terms
- By having a Trade Credit Risk Insurance policy, companies can avoid letters of credit as they impact their cashflow
- Operate within your means.