Australian businesses are ideally placed to export goods and services to their regional neighbours thanks to our strategic location, the depressed dollar, a rising middle class, and free trade agreements signed last year with China, Japan and South Korea.
Many Australian companies are looking to seize the expansion opportunities offered in the region – but they should be wary of overextending themselves in a bid to win business.
The payment experience of businesses in the Asia Pacific region is continuing to deteriorate, according to the latest Survey of Corporate Payment Trends in Asia Pacific conducted by Coface, one of the world's leading international credit insurance providers.
As a result, Australian companies have been encouraged to adopt a more prudent and disciplined approach in the credit and payment terms they are offering customers.
The research points to the trend of companies taking tighter control of their credit management, with the number of Australian companies experiencing ultra-long overdue payments of more than 120 days that account for more than 2 per cent of turnover – the point at which this would hurt a company's liquidity – has fallen from 23 per cent in the previous year to 17 per cent.
The report, which surveyed 2,695 companies in eight Asia Pacific countries, states that 92.9 per cent of Australian companies offered credit terms to their customers two years ago – a figure which has since fallen to 81.9 per cent and there has been 12.6 per cent percentage drop in the number of companies experiencing overdue payments from their customers to 74 per cent of those surveyed.
Of those Australian businesses that provided credit terms to their customers, 82.6 per cent of them offered average credit terms of 30 days and 16.4 per cent offer between 60 and 90 days. Only 1.03 per cent Australian businesses offered average credit terms of more than 120 days.
Taking advantage of a growing market
In China things have moved in the opposite direction. Two years ago 86.4 per cent of Chinese companies offered credit to customers. This has now risen to 89.6 per cent. Only 30.1 per cent of the Chinese businesses surveyed offer 30-day average credit terms with the majority (58.3 per cent) offering between 60- and 90-day average credit terms.
More than 7.5 per cent of Chinese companies surveyed provided average credit terms of 120 or more days.
In speaking with our Australian clients, as many as 70 per cent of them who do not already export to Asia are looking to take advantage of the growing Chinese market and expand into offshore exporting in the next 12 months.
It's paramount business owners and financial controllers do not relax their credit management controls with extended payment terms.
Although it is a tempting scenario to appear competitive, this could actually weaken the business and stunt future growth.
Chris Little is Coface's commercial director in Australia