Payment Survey 2009 - Final Version

8/4/2019 Payment Survey 2009 - Final Version

1/50

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

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.


2/50

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


5/50

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


6/50

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


7/50

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)


8/50

No. of years from establishment

< 1 year0.11%

1 - 5 years3%

5 - 10 years6%

> 10 years91%


9/50

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%


10/50

PAYMENT TREND


11/50

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


12/50

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


13/50

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


14/50

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


15/50

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


16/50

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


17/50

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


18/50

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


19/50

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


20/50

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


21/50

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


22/50

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


23/50

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


24/50

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


25/50

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


26/50


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


27/50


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)


28/50


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)


29/50

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


30/50

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


31/50

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


32/50

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


33/50

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


34/50

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


35/50

GLOBAL CRISISEFFECT ONCOMPANYS CREDIT PERIOD


36/50

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%


37/50

Global CrisisReasons for extended payment terms

Financial Difficulties46.84%

Delays in payments fromDebtors35.06%

Decrease in sales12.93%

Credit restrictions frombanks4.74%

Others0.43%


38/50

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


39/50

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.


40/50

RISK MITIGATION STRATEGY


41/50

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


42/50

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


43/50

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


44/50

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


45/50

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


46/50

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


47/50

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


48/50

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


49/50

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


50/50

Coface copyright, conditions of use : You may copy and publish the information with the consensus of Coface, provided that you do not make commercial

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]

[email protected]

Contact :

Payment Survey 2009 - Final Version

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