Whilst the concerns in Asian countries regarding the consequences of a trade war with the United States continue to rise, India continues to perform well. India has a closed economy, which makes them less vulnerable to trade restrictions. The country is expected to remain one of the fastest growing economies in the region. It was in the top 10 of export countries where Dutch exporters realised an increase in turnover last year, and is in the top 10 countries expected to see growth in export in 2018. This offers opportunities for the 131 companies participating in the trade mission to India led by Prime Minister Rutte this week. Dutch exporters, however, must take into account the lack of payment morals in India. The percentage of domestic late invoices in India is 57.8 percent, the highest in the region. This was shown by the Payment barometer for Pacific Asia by Atradius, which researched the payment morals of companies in Australia, China, Hong Kong, India, Indonesia, Japan, Singapore and Taiwan.
A decline in the global trading climate could have serious consequences for the Asian Pacific region. India seems less susceptible to the possible effects of this. India grows by over 7 percent annually and is the third largest economy in Asia. The country also has a growing and increasingly wealthy middle class and a young and increasingly educated population. The Indian government is also working on a better business climate, quality of life in the cities and the development of a better infrastructure for the ports.
Late payments far above regional average
This offers opportunities for Dutch exporters, but Atradius emphasises that they have to take into account issues that could obstruct business relationships. The percentage of late invoices in India is the highest in the region. In the last year there was an increase of 21 percent in the average payment time in domestic invoices. This is far above the region average of 7 percent. In India it now takes an average of 76 days for an invoice to be paid, compared to 63 days in the previous year. The number of late invoices is the highest in the chemical and construction sectors. Over a quarter of companies indicates that delays in domestic payments are primarily caused by an inefficient banking system.
E-invoicing on the rise to speed up payment
Although there is a slight decrease in the number of bad debts (from 2.6 to 2.4 percent) it is still the highest percentage in the region. The main reason for this according to companies is that customers went bankrupt or ceased their activities. 27 percent also expects the payment behaviour to worsen over the coming 12 months. More and more companies in India are using e-invoicing to get paid more quickly. Almost 4 in 5 companies use this solution and this is the highest in the region. Over 90 percent of these companies indicate bills are paid faster through this method.
"India is an interesting sales market for Dutch companies. A lot of measures are being taken to improve the India trading and investment climate. It offers a lot of opportunities for Dutch exporters, although a lot of steps still have to be taken to safeguard good trade relationships. The lack of payment morals is still a cause for concern," says Tom Kaars Sijpesteijn, general director of Atradius Nederland. "Because many Indian companies are paid late, they in turn can then not meet their payment obligations on time and have to seek extra financing. A credit insurance can offer a solution to both Dutch exporters and Indian trading partners in this instance. The exporter is assured his shipment will be paid for, whilst the Indian importer is given more breathing space to pay his bill.
In the payment barometer for Pacific Asia, Atradius gave insights into the main causes for payment risks, the consequences of them for the profitability of companies and the vision of entrepreneurs on the development of payment morals for the coming 12 months. The full report can be downloaded here.
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