payment survey 2009 - final version
TRANSCRIPT
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8/4/2019 Payment Survey 2009 - Final Version
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2009 Surveyof
Corporate Credit Risk Management in India
REPORT
Coface copyright, conditions of use : You may copy and publish the information with the consensus of Coface, provided that you do not make commercial
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Survey Report
1. Basic information on interviewed companies
2. Payment trends3. Risk mitigation strategy
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BASIC INFORMATION
ON INTERVIEWED COMPANIES
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Background
Objectives :To understand the general status of the credit management in
companies in India
To understand the domestic payment experience of companies in India.
To understand the impact of the credit crises and how it has affected
payment behaviour of debtors
Payment survey done for the second consecutive time in India so the results
are compared to results of survey done last year
Survey period took place from September to November 2009
5,000 companies with operations in India have been approached
905 valid questionnaires have been collected
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Nature and types of companies interviewed
100%Foreign
Owned, 2
Partnership
Firm, 4
Private
LimitedCompany,
149
Joint
Venture, 1ProprietaryConcern, 14
Govt Owned
Company, 3
Public
LimitedCompany,
732
Manufacturing,
760
Retailing, 6
Services, 78
Trading &Wholesale,
61
Types of companies
Natrure of companies
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Size of companies
1 to 90.33%
10 to 49
5% 50 to 997%
100 to 500
45%
More than 500
43%
No. of employees
1 to 9
2%10 to 49
11%
50 to 99
16%
100 to 200
27%
More than
200
44%
No. of customers
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Volume of activities : Domestic Sales
0%
10%
20%
30%
40%
50%
60%
< 100 100 - 500 500 -1000 1000 - 2500 2500 - 5000 5000 - 10000 > 10000
14%
58%
12%9%
3% 2%1%
5%
10%
27% 26%
13%
9%11%
2008
2009
(Figures in INR Millions)
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No. of years from establishment
< 1 year0.11%
1 - 5 years3%
5 - 10 years6%
> 10 years91%
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Industries of companies interviewed
Steel, iron & metals12.38%
Automotive & Ancillaries11.49%
Textiles / Clothing
10.72%
Chemicals10.17%
Pharmaceuticals7.07%
Industrial Machinery6.74%
Construction6.41%
Paper & Packaging6.08%
Food & Beverages5.52%
Industrial Electronics4.20%
Services3.87%
Consumer Electronics2.65%Petrochemicals
2.10%Agriculture1.77%
IT/ISP &Data Processing
1.77%
Shipping /Transportation
1.44%
Personal Care1.33%
Computers &Peripherals
1.10%
Telecom1.10%
Leather0.88%
Breweries0.44%
Media0.44%
Others0.33%
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PAYMENT TREND
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Open account : Not much used initially
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1 to 5 years 5 to 10 years > 10 years
10% 13%
77%
2% 9%
89%
2008
2009
Years of Incorporation
Mostly well established companies are using open account as preferred mode of payment
One answer
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Open account : Preferred payment mode
0%
10%
20%
30%
40%
50%
60%
70%
80%
Others Cash Confirmed Bank Draft
L/C Advance Payment Open Credit
4% 5% 2%
10%6%
73%
3% 3% 5%8%
17%
64%
2008
2009
Open account is the main payment mode offered by more than 60% of the companies
Compared to last year, more companies have opted for advance payments and otherSecured terms (e.g. Confirmed Bank Draft)
One answer
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Payment modes by industries
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Others Cash Confirmed Bank Draft L/C Advance Payment Open Credit
One answer
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Open AccountA favorite payment mode across industries
43%
50%
50%
50%
57%
59%
64%
66%
67%
69%
69%
70%70%
72%
75%
75%
75%
75%
78%
79%
79%
90%
100%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Services
Agriculture
Industrial Electronics
Media
Steel, iron & metals
Industrial Machinery
Automotive & Ancillaries
Food & Beverages
Personal Care
Textiles / Clothing
Shipping / Transportation
ChemicalsTelecom
Construction
Paper & Packaging
Breweries
IT/ISP & Data Processing
Leather
Pharmaceuticals
Petrochemicals
Consumer Electronics
Computers & Peripherals
Others
One answer
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Open Accountthe most important payment terms
0%
5%
10%
15%
20%
25%
30%
35%
40%
< 10% 10% 30% 30% 50% 50% 75% > 75%
10%
19%
17%18%
37%
14%
22%
18%
13%
34%
2008 2009
Percentage of Open Account transactions
More than 1/3rd of the companies interviewed have more than 75% of their total sales on open account
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Open AccountTransactions increasingly used
0%
10%
20%
30%
40%
50%
60%
< 10% 10% 30% 30% 50% 50% 75% > 75%
30%
49%
16%
3% 2%
37%
52%
9%1% 1%
2008
2009
0%
10%
20%
30%
40%
50%
60%
Decreased Increased Unchanged
10%
35%
56%
10%
36%
54%2008
2009
Sales Turnover
Like previous year, more than 1/3rd of the companies interviewed have increased their Open Account sales
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Open AccountMode of Payment
Open Account is the favourite mode of payment
Mostly used by companies more than 10 years old
Compared to last years 70%, this year 60% of the companies utilize
open account as their main mode of payment
This trend is observed across all sectors
1/3rd of the companies have increased their O/A sales last year
1/3rd of the companies have more than 75% of their total sales onopen account
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Open AccountAverage payment terms
0%
10%
20%
30%
40%
50%
60%
70%
80%
30 days 60 days 90 days 120 days and above
71.5%
20.6%
7.7%0.3%
74.7%
14.3%
9.8%1.2%
20082009
One answer
More than 70% of companies are granting upto 30 days as AVERAGE payment terms
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Open AccountMaximum payment terms
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
30 days 60 days 90 days 120 days 150 days 180 days More
18.8%
40.6%
27.5%
8.9%
1.3% 1.6% 1.3%
20.1%
41.2%
30.6%
4.4%
1.7% 1.7% 0.2%
2008
2009
One answer
More than 90% of the companies offer no more than 90 days of MAXIMUM payment terms
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Open AccountA tool to compete and expand customerbase
64.71%
22.79%
5.88% 3.68% 2.94%
71.07%
14.64%10.00%
2.86% 1.43%0%
10%
20%
30%
40%
50%
60%
70%80%
Market Competition You have more confidencein your customers
Your clients are sufferingfrom tight liquidity and ask
for credit facilities
3rd party risk mitigation inplace (credit insurance,
guarantee, LC, Factoring)
Others
2008 2009
50.00%
36.36%
13.64%
55.28%
30.65%
14.07%
0%
10%
20%
30%
40%
50%
60%
Retaining existing customer base Enlarge existing customer base Enhance key customer relationship
2008 2009
One answer
More than 70% of the companies interviewed are granting open accounts to face market competition
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Open AccountMode of Payment (1)
Open AccountStandard and maximum payment terms
There is some caution from Indian companies in the way they
manage their credit policy
A large majority of companies are adopting a conservative approach
by granting a maximum of 30 days as standard payment terms
The majority (90%) of the companies do not go beyond 90 days.
Only a small % goes beyond 120 days.
When considering that 52% of companies have increased their open
account sales in 2009 by 1030%, it shows that Indian companiesare still confident in the capacity of their clients to pay despite of
economic environment
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Open AccountMode of Payment (2)
Open AccountStandard and maximum payment terms
More than 70% of the companies are granting open account to face
market competition.
- 55% of the companies do it to retain existing database
very accurate in period of financial difficulties
- 30% of the companies are looking at enlarging their existing
customer base and the rest grant to enhance key customer
relationship
10% of companies interviewed have more confidence in their
customers which is more than 2008
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Standard payment terms offered across industries
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
120 days 90 days 60 days 30 days
One answer
Percentage of companies interviewed Average payment terms
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Maximum payment terms offered across industries
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%> 120 days 90 days 60 days 30 days
One answer
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Overdue Accounts across industries (1)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
< 30 days 30 -60 days 60-90 days 90 -120 days 120-150 days > 150 days None
DSO (Days of Sales Outstanding) for domestic sales
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Overdue Accounts across industries (2)
0%
10%
20%
30%
40%
50%
60%
70%
Overdues between 6 months and 1 year Overdues of more than 1 year
Overdues between 6 months & 1 year and above 1 year
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Overdue Accounts across industries (3)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
< 0.5% 0.5 - 2% 2 - 5% 5 - 10% > 10%
Overdues between 6 months and 1 year (in % of total turnover)
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Overdue Accounts across industries (4)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
< 0.5% 0.5 - 2% 2 - 5% 5 10% > 10%
Overdues of more than 1 year (in % of total turnover)
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Overdue accountsCollection period (1)
0%
10%
20%
30%
40%
50%
60%
70%
< 30 days 30 - 60 days 60 - 90 days 90 - 120 days 120 - 150 days > 150 days
61.77%
22.42%
9.52%
3.23%0.97% 2.10%
61.97%
26.48%
8.17%
2.25% 0.56% 0.56%
2008
2009
More than 60% of companies are paid within 30 days from due date, almost 90% are
paid within 60 days from due date
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Overdue accountsCollection period (2)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
< 0.5% 0.5 2% 2 5% 5 10% > 10%
35%
32%
24%
5%4%
42%
28%
16%
8%7%
2008
2009
0%
10%
20%
30%
40%
50%
60%
< 0.5% 0.5 2% 2 5% 5 10% > 10%
31%
21%
25%
15%
9%
55%
23%
17%
3% 2%
20082009
More than 80% of companies have up
to 5% of their sales on overduebetween 6 months and 1 year
95% of companies have up to 5% of
their sales on overdue more than 1year
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Risk of DefaultType of companies
0%
5%
10%
15%
20%
25%
30%
35%
40%
ProprietaryConcern
Private LimitedCompany
PartnershipFirm
Public LimitedCompany
Govt OwnedCompany
100% ForeignOwned
GovtDepartments
Joint Venture
38%
24%
19%
13%
3%2% 2%
0%
37%
26%
21%
9%
4%
1% 1% 0%
2008
2009
One answer
Most risky types of companies in India
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Risk of DefaultReasons
0%
20%
40%
60%
80%
Financial Difficulties Management Chaos Commercial Disputes Fraud & lack of morality
(try to avoid payment)
Others
48%
15% 12% 8% 10%
64%
14% 14% 7% 1%
2008 2009
0%
10%
20%
30%
40%50%
60%
70%
Lack of financing resources Fierce competitionimpacting margins
Impact of rising rawmaterial prices
Others
41%
27%
14% 9%
48%
35%
16%1%
2008 2009
Almost 1/3rdof the companies interviewed consider the customers financial difficulties
as the main reason for non-payment
mostly due to lack of financing resources & fierce competition
Twoanswers
Oneanswer
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Overdue accountsSectorwise
Most companies in various sectors have standard payment terms of 30 days
Most industries offer a maximum of 60 days credit terms to their clients at
the exception of Agriculture, Chemicals and Petrochemicals sectors.
Most companies across industries experience DSO below 30 days. Only
Consumer Electronics, Services and Shipping sectors suffer significantlyfrom longer payment records.
Short term (between 6 months and 1 year) overdues are frequent in the
following sectors: Agriculture, Consumer Electronics/Industrial Electronics
/Telecom/IT, Paper & Packaging and Shipping industries
Long term (Above 1 year) overdues are frequent in the following sectors:
Computer & Peripherals, Food & Beverage, Services, Textile/Clothing
industries
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Overdue accountsOverdues & Reasons
More than 60% of companies are paid within 30 days from due date (stable
between 2008 and 2009)
However,
More than 80% of the companies interviewed have up to 5% of their sales on
overdue between 6 months and 1 year
95% of the companies interviewed have up to 5% of their sales on overdue for
more than 1 year (= a clear deterioration YoY)
More than 80% of the defaults come from small and private companies
(proprietary concerns, Partnership firms, Pvt. Ltd. Companies)
Financial difficulties are the main reason for default for around 65% of the
companies
Due to lack of financing resources
Due to fierce competition impacting margins
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GLOBAL CRISISEFFECT ONCOMPANYS CREDIT PERIOD
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Global CrisisTypes of companies being affected (= asked forextended credit terms, payment rescheduling, etc)
0%
5%
10%
15%
20%
25%
30%
All types of
companies
Private Limited
Company
Proprietory
Concern
Partrnership Firm Public Limited
Company
Government
owned company
Joint Venture
29%
22%
17%
14%13%
4%
1%
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Global CrisisReasons for extended payment terms
Financial Difficulties46.84%
Delays in payments fromDebtors35.06%
Decrease in sales12.93%
Credit restrictions frombanks4.74%
Others0.43%
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Global CrisisExpected recovery
End of 200919%
Middle of 201053%
End of 201028%
The impact of the financial crisis on payments should start to ease by mid 2010 in India
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Global CrisisEffect on companies
SOEs and JVs were the less affected types of companies during thefinancial crisis, while Private Limited companies suffered most from it.
Companies asked for extended payment terms from their suppliers for
two main reasons:
- Financial Difficulties
- Delay in payments from their debtors
No significant credit crunch impact on Indian corporates.
More than 50% of companies interviewed feel that payment situation in
India should improve by mid 2010.
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RISK MITIGATION STRATEGY
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Presence of Credit Control in India
0%
10%
20%
30%
40%
50%
60%
70%
80%
Yes No
65.30%
34.70%
75.67%
24.33%
2008
2009
75% of the companies interviewed have proper credit management procedures
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Credit Control : Finance Department in charge
0%
10%
20%
30%
40%
50%
60%
70%
Finance Department Sales Department Credit ManagementDepartment
Others Responsibility notclearly defined
65%
13%
4%
16%
2%
64%
25%
6%
3% 2%
2008
2009
One answer
In 2/3rd of the companies, Finance department handles credit control
M t diffi lt t k ith dit i k d i
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Most difficult tasks with credit risk procedures inIndia
0%
5%
10%
15%
20%
25%
30%
35%
40%
Obtaining reliableinformation on the client
Granting appropriate creditlimit & payment terms
Receiving payment Managing the accountreceivables
35%
18%
30%
15%
38%
27%
18%
17%
2008
2009
One answer
Obtaining reliable information and granting appropriate credit limit and payment terms
to clients are the most difficult tasks in India
Ch l d t bt i dit i f ti
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Channels used to obtain credit information oncustomers
0%
5%
10%
15%
20%
25%
30%
35%
40%
Market Information Own on site visits Bank InformationAgencies
Public Information Others
37%
18%
16%
10% 11% 9%
39%
20%19%
9%
12%
0%
2008
2009
Multiple answers
Market Information is more used to assess the credibility of customers;
Indian companies do not use extensively third parties (information agencies, publicinformation) to obtain information on their clients
Channels sed to obtain credit information on
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Channels used to obtain credit information oncustomers
0%
5%
10%
15%
20%
25%
30%
Past TradingRecords
Bank Reference Own on-site visits Trade Reference FinancialStatements
Others
21%
18%
19% 19%
17%
6%
27%
22%
19% 19%
10%
3%
2008
2009
Multiple answers
Various information data are considered to evaluate credit worthiness of clients
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Effective ways to avoid trade credit risks
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Credit Insurance In-house expertise Credit agencyreports &
recommendations
Factoring Debt Collection Outsourced invoicemanagement
36%
27%
12%
10%
13%
3%
42%
31%
8%7%
6% 5%
2008
2009
One answer
Credit Insurance and In-house expertise is appreciated in India
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The most used recovery action : Amicable Negotiation
0%10%20%30%40%50%60%
AmicableNegotiation
Legal Action Request for ThirdParty intervention
Arbitration Others
42%
30%
12%1%
15%
56%
36%
4% 3% 0%
2008
2009
0%
20%
40%
60%
80%
Amicable Negotiation Legal Action Request for Third
Party intervention
Arbitration Others
62%
19%
8% 1%11%
73%
24%
2% 1% 0%
2008
2009
Oneanswer
Multipleanswers
Amicable Negotiation remains the favorite approach of more than 56% companies
interviewed to recover overdue accounts Even Legal action is also largely used
Almost 3/4th of the companies interviewed consider Amicable Negotiation as the mosteffective way to recover overdue accounts
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Risk Mitigation : Credit Control (1)
2/3rd of companies have proper credit management procedures
1/3rd of the companies interviewed delegate to their Finance Department the
responsibility of handling credit management & related functions
Only 6% of the companies have their own Credit Management Department
Most difficult task with the credit risk procedures in India is obtaining
reliable information on the client and granting appropriate credit limits and
payment terms
Companies do not use extensively third parties (information agencies, public
information) to obtain information on their clients
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Risk Mitigation : Credit Control (2)
Various information data like Past trading records, trade reference, own on-site visits, Bank reference, Financial statements, etc. are considered before
setting customers account
More than 40% of the companies consider Credit Insurance as the most
effective way to avoid trade credit risks.
External expertise is recognized in India. However, In House knowledge
remains also an imperative
More than 55% of the companies use Amicable Negotiation to recover
overdues since they believe this is the most effective approach
Legal action is also increasingly used and proves to be effective in debt
collection
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use of it and that you indicate clearly that it originates from Coface. The information is given without guarantee and does not bind Coface in any way.
THANK YOU !
Gladys Tejura / Donald DsouzaCoface India Credit Management Services Pvt. Ltd.5th Floor, Aryston CentreJuhu-Tara Road, Opp. J.W. Marriott HotelMumbai 400 049
Tel. : + 91 22 26122535Fax : + 91 22 26122541Email : [email protected]
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