Payment Practices Barometer Hong Kong

Survey results for Hong Kong

The greatest challenge to business profitability this year

As a small, open economy, Hong Kong is more susceptible than most to variations in global economic and financial conditions, although domestic demand is stable and exports are robust, although perhaps not as fast as in recent years. The economy is expected to expand by 3% to 4% in 2014, after growth of 2.9% in 2013. This would still be slightly lower than the average growth of 4.5% over the past decade, but all in all, their economy remains robust and varied enough to maintain healthy growth. However, Moody’s has issued warnings to Hong Kong’s Banking sector during 2014, notably to Hong Kong branches of Chinese banks, warning them about overexposure to the fluctuations in the mainland economy due to their depleted capitalisation at the hands of increased lending.

Respondents to our survey indicated that their biggest challenge to profitability this year would be maintaining adequate cash flow, with 37.4% stating this to be the case. Hong Kong’s response rate was the third highest of all nations surveyed in Asia Pacific, after Taiwan and China. The average response rate for maintaining adequate cash flow in the Asia Pacific region was 35.6%, higher than the 32.4% rate in Europe and the 31% rate in the Americas.

The second biggest challenge facing respondents was bank lending restrictions, which impacted 17.7% of respondents in Hong Kong. This was slightly less than the 18.8% of respondents in India and comparable to the 17.8% of respondents in Singapore, but higher than the 14% average for the Asia Pacific region. This is likely to be due to the new found conservatism in the banking sector following Moody’s warnings.

Past due receivables and uncollectables

Overdue invoices prove a common issue for many respondents in the region. Across Asia Pacific, 36.2% of the total value of invoices issued by respondents remained unpaid at the due date, with figures in the Americas and Europe more or less the same. Singapore came in highest in the region at 41.5%, significantly above average, but Hong Kong was not far behind, with 38.9% of receivables value unpaid by the due date.

Despite this, Hong Kong’s respondents fared well in collecting overdue receivables with one of the lowest percentages, 4.3%, of monies more than 90 days overdue. Uncollectable debt, sat right at the regional average at 2.2%.

 Also of note, by comparing the percentage of receivables that remained outstanding after 90 days past due, to that of the uncollectable receivables, we can conclude that on average, businesses in Hong Kong lose 51.2% of the receivables which are unpaid at 90 days past due. By country, this is the fourth highest of the countries surveyed in the Asia Pacific region.

Days Sales Outstanding – DSO

With the exception of China at 78.9%, respondents from Hong Kong were most fearful of the threat posed to the sustainability of their businesses by DSO, with 74% citing discomfort as early as thirty days, somewhat higher than the regional average of 70.85%. This is likely to be as a result of the Chinese attitude to trading on credit, where it is still approached with caution. It’s unlikely to be a coincidence that respondents from nations closest to China – Hong Kong and Taiwan – become concerned earlier on in the receivables period.

Across the region, average payment terms are 34 days, whilst average DSO sits at 54 days – a difference of 20 days. 69.5% of Hong Kong’s respondents stated that their DSO was 0-30 days, whilst the overall average DSO for Hong Kong was 37 days, both of which place it at the better end of the regional spectrum. India had the highest DSO of 65 days, whilst Australia enjoyed the lowest DSO at 31 days.

Main reasons for late payment from B2B customers.

49.5% of respondents in Hong Kong experienced late domestic payments due to insufficient availability of funds, slightly more than the regional average of 47.3% and more or less aligned with the rest of the region, except for Japan, as the most frequent reason for not getting paid. The second most frequently cited reason for payment delays was disputes over the quality of goods provided. The 38.73% response rate was higher than all but that of Taiwan at 46.73%. The regional average was 31.98%.

In terms of foreign trade, 38.64% of Hong Kong’s respondents said the same – insufficient availability of funds was the critical reason for late payments, the highest in the region amongst all those surveyed, compared to a regional average of 34.52%. 34.09% cited payment complexity as the biggest problem. The response rate in Hong Kong was closer to that of the Americas (33.51%) than that of Asia Pacific (39.97%). The average rate for Europe was 23.9%.

Credit management policies used by respondents

Respondents from Hong Kong were the third least likely to have policies in place to mitigate the risk of payment default, at 71.65% slightly below the regional average of 72.14%.

Consistent with regional averages, the most popular credit management practice used in Hong Kong is checking buyer’s creditworthiness. This is done by 42.65% of Hong Kong’s respondents. The second most preferred option was monitoring buyer credit risks, which is done by 41.18% of respondents compared to the regional average of 48.88%.

In terms of payment methods Hong Kong’s respondents favour electronic transfers and expect their use to increase by 31.82%. But this was the second lowest response rate, behind Japan at 19.88% falling below the regional average of 41.06%. Respondents from Hong Kong foresee the biggest increase in the use of Paypal, with 50% predicting greater use, putting them in line with Singapore as the second highest in the region behind Indonesia at 57.14%. The regional average was 47.01%. This is likely to be due to the prevalence of internet purchasing and the security offered by the PayPal service.