Highlights of the survey:
- Risk of default in payment in India is the highest in proprietary firms followed by private companies. It is the least in government departments
- Open account payments are offered by more than 60% of the companies. More than 70% of companies are granting up to 30 days as average payment terms and more than 90% of companies are granting not more than 90 days as maximum payment terms
- Financial difficulties are the main reason for default for around 65% of the companies
- Most difficult task with the credit risk procedures in India is obtaining reliable information on the client to ascertain the appropriate credit limit and payment terms to be granted
- The impact of the global financial crisis on payments will begin to ease by mid-2010 in India
A recent survey by Coface (France based company, the world’s leading trade receivables management company), on credit management systems used by Indian companies has come out with some interesting findings. The objectives of the survey were to understand the general status of credit management used by India companies, the domestic payment experience and the impact of the credit crises and how it has affected the payment behaviour of debtors.
Elaborating on the survey, Mr. Samuel Jesuratnam, Country Head, Coface India said, “The survey aims to understand the overall status of the credit management systems used and the domestic payment experiences of companies based in India. Although Indian companies have adopted a more cautious approach in terms of managing their credit, open account is still the main payment mode offered by more than 60% of the companies.”
One of the major findings of the survey is that the risk of default in payment in India is the highest amongst proprietary firms, with a 37% share. Private limited companies with 26% and partnership firms with a 21% share respectively are the second and third highest in terms of risk of default. Government departments are the safest
The survey, conducted for the second time in India also states that the standard payment terms for most companies are around 30 days and most industries offer a maximum of 60 days credit terms to their clients. Long term overdues (above 1 year) are frequent in sectors like computer & peripherals, food & beverage, services, textile & clothing. Short term overdues (between 6-12 months) are frequent in sectors like agriculture, consumer/industrial electronics, telecom, IT, paper & packaging and shipping.
The survey found that 53% of the companies covered expect the impact of the global financial crisis on payments to start easing by the middle of 2010 in India. Another 28% expect it to happen by end of 2010 and 19% of them felt that it has started easing by end of 2009 itself.
Although 2/3rd of companies have proper credit management procedures, surprisingly only 6% have their own Credit Management Department. Also surprising is that companies do not extensively use third parties (information agencies / public information) while the survey found that most companies who extended payment terms did so due to the financial difficulties faced by their debtors.
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The use of open account payment terms, a relatively unknown practice more than ten years ago, has now become common practice in India and other countries. The survey results show that this development of open accounts is not only used to face market competition in a competitive environment but also used to retain existing clients.
Methodology:
The survey covered 905 companies spread over 23 sectors in India.
Interviewed companies are divided up as follows:
- 149 are private limited companies, 732 are public limited companies, 14 are proprietary concern, 4 are partnership firms flowed by 3 government owned companies, 2 foreign companies and 1 joint venture company.
- 760 are in manufacturing, 78 in services, 61 are in trading and wholesale and 6 in retailing sectors.
About Coface
Coface, an expert in risk analysis, supports companies in the monitoring, management, protection and financing of their accounts receivable through its four business lines: Trade receivables protection (credit insurance), Trade receivables finance (factoring), Business Information and Trade receivables management (debt recovery). In France, Coface also manages public procedures for export Guarantees provided by the French State.
Coface's mission is to facilitate global business-to-business trade by offering its 130,000 customers its four businesses lines to fully or partly outsource their trade receivables management. Thanks to the worldwide local service delivered by 7,000 staff in 65 countries, over 45% of the world's 500 largest corporate groups are already customers of Coface.
Coface is a subsidiary of Natixis which is listed on the Paris stock exchange, it has a solid financial base with total Tier 1 capital of €12.4 billion, a Tier 1 ratio of 9.5% and quality long-term ratings (Standard & Poor’s and Fitch Ratings: A+; Moody’s: Aa3).
About Coface in Asia
Since 1994 Coface has established a network of companies and partners in Asia and is now active in 10 countries and organized around 3 Regional Platforms in Singapore, Hong Kong and Tokyo.
With more than 4 500 clients, Coface is a leader in Trade Receivables management in Asia and offers credit insurance, factoring, company information and receivables management to its clients.
Coface established a Liaison office in India in early 2000 which was converted into a subsidiary in February 2001. Coface Singapore has technical partnership agreements with ICICI Lombard General Insurance Company Limited, IFFCO-Tokio Marine General Insurance Company Limited, Bharti AXA General Insurance Company Limited and Universal Sompo General Insurance Company Limited for its offer of domestic and export credit insurance in the Indian market.