Debt Collection in Asia: Market Outlook
Asian economies play a vital role in the global economy, however, when it comes to debt collection, Asian countries have some of the most complex procedures in the world. According to Euler Hermes, the Asia Pacific (APAC) region has the greatest number of countries falling in the “severe” category for debt collection complexity.
Collecting overdue invoices is important for a company’s cash flow. Most countries in Asia, such as China, India, and Thailand do not provide substantial laws that regulate late payment leading to inefficient and complex legal proceedings.
To increase debt collection capabilities, companies must carefully review when selecting which companies to do business with. While doing business internationally, it is crucial to understand payment practices and collection behaviour of countries they operate with.
Although it is common to establish trust with the buyer, companies could reduce risk by signing and agreeing upon proper terms and conditions through formal documentation with the buyer. Companies should have clearly formulated credit collection policy if they want to be paid promptly for their products and services.
Companies can also secure debts by imposing interest rates and collection costs on their receivables. Third party transactions, such as factoring, along with transferring ownership of the receivables are also an effective method to receive cash early and prevent the risk of receivable default.
There are a number of ways companies can recover overdue amounts. In general, the outcome of recovery an overdue debt depends on the age of the debts.
In APAC, companies try to recover overdue amounts mainly by using internal resources and external partners such as debt collection and legal agencies. Professional debt collection agencies are becoming more and more popular in Asia where companies prefer to avoid inefficient and bureaucratic legal procedures.
Companies should also consider trade credit insurance which could protect them in case of buyer default. The ultimate goal for companies is to maintain positive cash flow, regardless of what methods are used. Companies should always conduct due diligence before enabling lines of credit for their customers.
References:
https://www.theceomagazine.com/business/finance/apac-businesses-open-alternate-debt-collection/
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