The COVID-19 pandemic placed unprecedented pressure on businesses and their cash flow, making B2B late payments an increasingly important concern for companies around the world. In Asia, early data showed a substantial increase in overdue invoices as disrupted supply chains, weakening demand, and broader economic uncertainty affected businesses’ ability to meet their payment obligations. For suppliers, these conditions underscored the importance of closely managing receivables and protecting working capital during periods of financial stress.
The impact of delayed payments extends well beyond individual invoices. When customers take longer to pay, suppliers experience higher days sales outstanding (DSO), which can constrain liquidity and make it more difficult to meet their own financial obligations. As economic conditions deteriorate, effective credit and receivables management can therefore become an important component of business resilience.
This posting can be found at Global Banking and Finance review, and references some data from Atradius, a risk management and credit insurance firm based in the U.S. In one of Altradius’ ongoing surveys around regional payment habits, with this particular piece referencing an Asia survey, there are early warning signs of economic damage as the real impact of COVID-19 spreads across the globe. There are some interesting results from the March survey, which was conducted more or less during the early stage of crisis recognition, at least in the west. It seems perhaps that a ‘batten down the hatches’ period is on the way.
‘In a survey conducted in March this year, Atradius found that businesses in Asia reported more than half (52%) of B2B invoice payments as late, a significant increase from under a third (30%) year on year. More than one in 10 invoice payments (13%) are reported to be in excess of 90 days late with 3% of B2B invoices by value written off as uncollectable. Looking forward, the report found half of Asian businesses (52%) expect to face more late payments – a rise from 42% last year – while 35% expect to experience more write-offs in the next 12 months.’
In a member research report from 2019 about the resurgence of receivables management (seems like a century ago given the new world of 2020), Mercator Advisory Group discussed the importance of getting a vice grip on the business cash conversion cycle. Receivables management affects DSO and is the least controllable component of the cash cycle, less controllable than inventory and payables since it involves influencing counterparty policy decisions and often relies on coercion to get a result. In working capital, there is a natural friction between buyers’ goals for days payable outstanding (DPO) and sellers’ DSO requirements. The cash conversion cycle varies widely between industries as well.
‘Richard Reynolds, Head of Strategic accounts at Atradius UK, said: “The Covid-19 pandemic and ensuing containment measures around the world have impacted both national and international supply chains and trade. With the global economy dipping into recession, payment default risks are growing and we expect bad debts and insolvencies to continue rising into 2021. Accordingly, it is imperative suppliers take proactive measures to manage reduced demand and financial stress. Minimising these burdens with a robust credit management strategy, including thorough credit-worthiness assessments and ensuring adequate financial sustainability, will be key to survival for many of these businesses.”‘
The sharp increase in B2B late payments reported across Asia offered an early indication of the financial challenges businesses could face as the economic effects of COVID-19 intensified. Longer payment cycles and rising write-offs can create significant pressure on suppliers, particularly when organizations are simultaneously confronting weaker demand, supply chain disruptions, and uncertainty about their customers’ financial health.
Managing B2B late payments requires companies to pay close attention to the entire cash conversion cycle. While businesses can exercise substantial control over inventory and their own payment practices, receivables depend heavily on the behavior and financial condition of counterparties. That makes proactive credit management, customer risk assessment, and effective collection practices increasingly important when economic conditions deteriorate.
The competing objectives of buyers and suppliers can also become more pronounced during a downturn. Buyers may seek to preserve liquidity by extending days payable outstanding, while suppliers need to reduce days sales outstanding and collect invoices more quickly. That tension can amplify working capital challenges throughout supply chains.
As businesses respond to economic uncertainty, strengthening receivables management can help reduce exposure to deteriorating payment behavior and potential bad debt. Companies that closely monitor customer creditworthiness, identify payment problems early, and develop strategies for protecting liquidity may be better positioned to navigate periods when late payments and insolvencies are rising.
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group
