Asia-Pacific Companies More Aggressive in Collections
How companies recover unpaid invoices has changed over the past year, a recent Atradius Collections survey notes.
Currently, more companies—especially those in the Asia-Pacific region—use legal services, according to the September 2017 Global Collections Review, the report that summarizes the survey, which covers Europe, the Americas and Asia-Pacific.
“The approach to alternative solutions offered in the collections market displays a noticeable variance among companies in different countries,” the report states. For example, China, India, Indonesia and Mexico were among the countries that were more inclined to use alternative or additional solutions to traditional debt-collection services.
About 16.5% of the Asia-Pacific companies surveyed submit “mainly young debts”—not older than 60 days—to debt collection agencies, while 22% of them reported sending debts younger than 30 days.
Asia-Pacific companies also were noted as being more aggressive and willing to use several methods to recover money. “Alongside the use of internal resources for dealing with delays, they are also very willing to cooperate with debt-collection agencies and initiate legal action against their nonpaying buyers,” it explains. “Selling debts is also common among companies in the region, a practice that is becoming increasingly more frequent. … What stands out in the collection behavior of Asia-Pacific companies is their firmer approach to pursuing their debtors while making broader use of all available collection methods.”
The report points out that Asia-Pacific companies are more likely “to adopt additional debt collection service other than amicable services.” In addition, Asian companies—as well as businesses in the Americas—were characterized as more positive regarding changes in their overdue receivables or customers’ risk profiles because more companies in these areas expect improvements in payment timing and levels of credit risk.
The Global Collections Review includes responses from 6,400 companies and covers 30 countries, including all of the regions’ major economies; it examines collection behavior and how companies handle overdue invoices while identifying factors that influence the collection process. “In addition, this review explores potential developments regarding the services offered by debt-collection agencies and the expectations of changes in the buyers’ riskiness and quality of the overdue receivables portfolio.” To access the complete report, click here or visit the News & Updates from Credit Risk Insurers & Banks section in FCIB’s Knowledge Center.
Meanwhile, credit professionals can share real-time credit and collection experiences when doing business in Hong Kong, India, Japan, Singapore and South Korea by participating in the most recent FCIB International Credit & Collections Survey, which closes Oct. 6. Participants will automatically receive the results of the survey.
Has the German Middle Crumbled?
Chris Kuehl, Ph.D.
The better question, however, might be whether the European middle as a whole has vanished. Granted, this may be something of an exaggeration because Chancellor Angela Merkel prevailed in Germany’s election last week with around 33% of the vote, but that is the lowest vote total the Christian Democratic Union has notched since the end of World War II.
Her somewhat reluctant “grand coalition” partner, the Social Democrats, also polled near an all-time low, with just 21% of the vote. The real winner in the election was the Alternative for Germany (AfD). This party was created in 2013 as a primarily euroskeptic group opposed to German economic priorities and was not very popular.
Its growth lies in the refugee issue and the anger that was unleashed over the mass sexual assault against women by some immigrants at a music festival. The support for the party exploded, but that also set up an internal rift that has now come to the forefront.
The more economically focused and liberal wing wants to push for a bigger role, but the right-wing nationalist wing wants to play the opposition role and is highly antagonistic toward Merkel.
The split has been so intense that the party leader, Frauke Petry, has declared herself an independent and will not stand as part of AfD. The extreme right has been creating intense controversy over the refugee issue, but it has not stopped there as some of these leaders have been calling for rejecting memorials to the Jews killed in the Holocaust and have asserted that Germany needs to be proud of its Nazi past and all that it accomplished.
Germans are not the only ones who have seen substantial numbers flocking to these populist parties. These political movements are made up of angry and frustrated voters who believe that the old parties have been uninterested in them and are corrupt and mismanaged. In many cases, it is hard to argue with these conclusions.
The very real fact is that most nations are deeply divided, and these divisions manifest when there is fear and distrust. The Germans had been suffering from high unemployment rates, and those who lacked skills and education were the most vulnerable. They saw a political system that seemed to care more about the plight of the Syrians than about them.
Those who have been in power are accused of taking care of their own and paying no attention to those who have not been beneficiaries of the growth that has taken place. It is more than confusing to many political analysts that the very people supported by that angry voter are even less interested in the issues that matter to that disillusioned voter. The question for mainstream parties is how they become relevant again and that question has deeply divided them.
Some in the Merkel coalition want to shift hard to the right and adopt the positions of the AfD on refugees and the efficacy of the EU. Others want to tilt further to the left and pursue taxing the rich and focusing on environmental issues. Everyone agrees that growth is important to one degree or another, but there is no shred of consensus on how to pursue it.
Will tax cuts do the trick or is direct government stimulus required? Business wants core issues addressed, but nothing much happens as far as infrastructure development or solving the labor shortage. There has been spotty attention to regulation and tax reform, but nothing that anybody can build on. The centrists will have to find solutions and means by which people can cooperate and that has proven to be a monumental task.
De-Risking and Other Challenges for Emerging Markets
International banks are cutting back on the networks they maintain in developing countries, an unintended consequence of global regulatory reforms that could make it harder for businesses to grow and create jobs in emerging markets, according to a global survey of banks released by the International Finance Corporation (IFC), the private-sector arm of the World Bank Group.
Globally, 27% of banks surveyed noted declines in their correspondent banking relationships (CBRs) with financial institutions that provide services on their behalf—forcing them to reduce vital services, the survey notes. “The challenge is most critical In Sub-Saharan Africa, where 35% of banks reported a decline in these relationships—a major risk for countries’ economies heavily reliant on imports.”
“We are concerned,” said IFC CEO Philippe Le Houérou. “In emerging markets, the business environment has often been challenging for banks and their customers, but a decline in correspondent banking disrupts the financial connections that countries and businesses need.”
Restricting the availability of trade finance, wire transfers, deposits and other services could have a severe impact in developing countries, the IFC points out. The WTO estimates the existing global trade gap to be $1.4 trillion, and it exceeds $100 billion in Africa alone, a gap that the decline in CBRs will exacerbate further, the IFC predicts. An IMF study in April 2017 said the decline in these relationships could undermine affected countries’ long-term growth and financial inclusion prospects.
The survey polled 300 banks active in 92 countries, and the institutions surveyed have a total of $5 trillion in assets—roughly 10% of all emerging-market banking assets.
“Emerging-market banks are having to address multiple sets of new, sometimes conflicting, compliance requirements and are spending large amounts to upgrade their processes, hire staff and upgrade software,” the IFC said. “Some 78% expected the costs of regulatory compliance to continue to rise, further pressuring their ability to serve their customers with essential services.”
Over the past decade, policymakers have taken steps to bolster the global financial system with new rules against unnecessary risk taking, money laundering and terror funding, the IFC explained. “These reforms will help safeguard the system from future crises. But increased capital standards, rising compliance costs and the threat of large fines are also leading financial institutions to rethink their cross-border networks,” the survey confirmed.
Survey participants identified three solutions that could help address the issue, including greater harmonization of regulatory requirements, a centralized registry for due diligence data, and assistance with understanding and adaption to the new standards as measures. “A solution will require multiple stakeholders across the international community to formulate a comprehensive response,” the IFC noted.
“Trade, economic growth and the remittances that families depend on are at risk when banking relationships deteriorate,” said Marcos Brujis, director of the IFC’s Financial Institutions Group.
Regulatory compliance continues to reshape how companies do business, said Fred Dons of Deutsche Bank, a recent speaker at FCIB’s Rome Summit, held Sept. 10 to 12.
“A body such as the Financial Action Task Force has indicated that financial institutions should be required to take steps to identify and assess threat risk for customers, countries, products, transactions, delivery channels, etc.,” Dons said. “To do this properly across all regions, banks will have to limit the scope of business they are able to monitor, as monitoring—sometimes conflicting—anti-money laundering and compliance rules across the continents require a significant investment in time and resources. Something, in the end, will have to make sense economically, especially taking into account the cost of failure—which in fines alone is already USD 321 billion since 2008.”
As a result, Dons pointed out, the correspondent banking network is shrinking due to the de-risking efforts by some of the correspondents in quite a few countries. But, he added, there is also a positive effort within IT to tackle issues like compliance, know your customer and anti-money laundering.
“This process will continue in the coming years and will affect the corporate active in international trade,” Dons said. “It’s important for credit professionals to understand the effects of ever-tightening rules on trade finance, from know-your-customer issues to working with a shrinking trade-finance banking community toensure that they are as prepared as much as possible to mitigate its effects.”
Dons will discuss the additional checks banks must perform within trade, how they affect company business and how credit managers can mitigate some of the negative effects to ensure their payments are processed as smoothly as possible during the webinar Effects of Regulatory Compliance on Trade Finance, 10 a.m. ET, on Oct. 5.
Dons has worked in trade finance for more than 25 years and is a member of the Dutch Bankers Association; he currently heads up the Trade Finance Commodity team. He is also a member of the International Chamber of Commerce (ICC) and the National Committee on ICC Documentary Payments in the Netherlands.
U.S. top political risk concern for global businesses. Marking a dramatic shift in global geopolitics, a new study identifies the U.S. as the country where political risk is rising the most. The study, by Oxford Analytica and law firm Willis Towers Watson, puts the U.S. ahead of regions like the Middle East, Latin America, Venezuela, Sub-Saharan Africa and Russia when it comes to political risk. (Global Trade Review)
China to shut down North Korean companies. China has told North Korean companies operating in its territory to close down by early January as it implements United Nations sanctions against the reclusive state. Joint Chinese and North Korean ventures will also be forced to close. (BBC)
Spain heads for showdown over Catalan independence referendum. Spain is on tenterhooks as the crisis between Catalan separatist leaders and the central government reached fever pitch ahead of an independence referendum banned by Madrid. The showdown is one of Spain's biggest political crises since the end of the dictatorship of Francisco Franco four decades ago, and it has Catalonia deeply divided. (The Local.es)
Referendum in Kurdistan: A risky gamble in a volatile region. Nearly 93% of eligible voters in Kurdistan have cast their ballots in favor of independence. Although technically the referendum is nonbinding, it does represent a new and potentially dangerous phase in the relationship between Erbil and Baghdad, bringing with it a risk of civil war. (Global Risk Insights)
UK growth slows to four-year low as BoE prepares rate rise. Britain’s economy grew at its slowest pace since 2013 in the 12 months after last year’s Brexit vote, data showed on Friday, painting a subdued picture as the Bank of England prepares to raise interest rates for the first time in a decade. (Reuters)
Banks assess loan exposure as Qatar crisis deepens. Qatari banks and financial institutions in neighboring countries that have severed diplomatic and transport ties are assessing their exposure to each other and seeking to sell loans in the secondary market as the crisis threatens to deepen. (Reuters)
India's flagging economy draws dire warnings of recession. Prime Minister Narendra Modi came to power on a euphoric wave of promises to boost India's economy. Since then, India's economic expansion has slowed to its lowest level in three years. Small businesses are struggling, or even shutting down, after overhauls of the nation's currency and sales tax system. Modi's own allies warn of a dire outlook, with some raising the specter of an economic depression. (ABC News)
Third round of NAFTA negotiations conclude. The third round of the renegotiation and modernization of the North American Free Trade Agreement (NAFTA) concluded on Sept. 27. Negotiators said they “made significant progress in several areas through the consolidation of text proposals, narrowing gaps and agreeing to elements of the negotiating text,” according to a statement. (Global Trade Magazine)
Trump waives Jones Act for Puerto Rico, easing hurricane aid shipments. The Trump administration said on Sept. 28 that it would temporarily waive a century-old shipping law for Puerto Rico that officials there said was hindering disaster relief efforts after Hurricane Maria. The waiver of the law, known as the Jones Act, comes as federal and local officials report more supplies trickling onto the increasingly desperate island. (New York Times)
China's bitcoin market alive and well as traders defy crackdown. Weeks after Beijing banned fundraising through token launches and ordered some bitcoin exchanges to shut, casting a chill over the cryptocurrency industry, traders say that the market is far from dead. While several exchanges have announced that they would close by the end of September, traders have now moved to buy and sell bitcoin directly with each other on peer-to-peer marketplaces and messenger apps. (Reuters)
Venezuelans cross into Colombia as crisis deepens. Some 25,000 people cross the bridge into Colombia every day. Venezuela is suffering from acute shortages of medicines, hospitals struggle to treat patients, and staple goods have become scarce and unaffordable to many. The Colombian government recently introduced "border mobility cards" to allow Venezuelans to go back and forth across the border without the need for a passport. (BBC)
Week in Review Editorial Team:
Diana Mota, Associate Editor and David Anderson, Member Relations