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More than half of Hong Kong exporters have suffered bad debts over the past 12 months, losing tens of thousands of dollars, on average.

A new survey conducted by Euler Hermes and seen exclusively by GTR also found that close to 70% of existing buyers pay late and that 50% have requested more credit over the course of the past year.

On average, those companies that are reporting bad debts lose HK$200,000 a year (about US$25,000) – a significant sum, considering the heavy concentration of SMEs in the special administrative region. The majority of respondents had turnover of between HK$10mn and HK$40mn (or in US dollar terms: up to US$5mn).

“SMEs are vulnerable in this respect, since they usually have a limited financial base and liquidity,” says Euler Hermes regional commercial director Anil Berry. “In these circumstances, an ‘accident’ in the shape of an unpaid account can have disastrous consequences.”

The new data follows a recent study which predicted an increase in insolvencies in Hong Kong, Taiwan and China over 2015. The trade credit insurer found that bankruptcies will rise by 5% across the region, with the fallout from real estate and commodity issues trickling down to the exporter base.

As a result of the trend, SMEs are turning to letters of credit or asking for higher deposits. Companies are also being forced to take on expensive short-term loans to cater for working capital needs.

And while the need to safeguard assets against such eventualities is clear, just 20% of exporters in Hong Kong use trade credit insurance.

Some of the other key findings include:

• 56% of export sales are undertaken on an open account basis
• 83% of exporters have suffered from overdue payments
• 71% of buyers who delayed payments do so because of financial difficulties
• 95% of exporters collect their debts themselves
• 69% of exporters are concerned about payment defaults from Chinese buyers.

The survey comes at a difficult time for the region’s exporters. The widely reported slowdown in China has led to fears of contagion, with credit woes potentially spreading to neighbouring markets.

Already this year, we’ve seen one large-scale default in China: the Kaisa property development group, which defaulted on a large loan from HSBC in January. GTR reported in the same month that the squeeze on credit has led to the entry of new and less-regulated lenders to the trade and commodity sectors, which could potentially carry their own risks.

“It’s likely there will be an increase in insolvencies given the slowdown. We’re seeing more Chinese entities trying to raise cash from any source they can, including non-traditional entities such as funds,” Philip Gilligan, a trade and insolvency partner at Hong Kong-based law firm Deacons tells GTR.

“On one hand, some commodities companies have overstretched themselves and won’t be able to pay back. In more structured deals such as pre-payment, the economics may not make sense any more. The PRC company may have trouble repaying the pre-payment under their pre-payment contract,” he adds.

The survey interviewed 100 companies over the third quarter of 2014, with 59% of these trading in goods, 33% manufacturers, 4% services and 4% miscellaneous.