Overdue trade payments have fallen to 10-year lows in Asia as the region’s corporates adopt a more cautious approach to credit management, but the more restrictive terms are causing a rise in the duration of delays, fresh research by credit insurer Coface has found.

The share of companies reporting overdue payments fell from 64% in 2021 to 57% in 2022, the lowest level in a decade, according to the latest Coface Asia Corporate Payment Survey, which polled over 2,300 companies across Australia, China, Hong Kong, India, Japan, Malaysia, Singapore, Taiwan and Thailand between November 2022 and April 2023.

In value terms, only 27% of respondents said their overdue receivables had risen, versus 36% last year. A similar proportion – 26% – said their overdues were stable, up from 22% last year.

However, the average duration of payment delays across the region increased markedly, from 54 to 67 days.

Looking at individual industrial sectors, retail and pharmaceutical were worst hit, with increases of 15 and 10.5 days respectively. The construction industry, which had last year’s longest average late payment duration of 74 days and added a further three days this year, now shares the top spot with energy, which saw payment delays increase by 10 days.

Buyers’ financial difficulties were the largest contributor to the late payments, while around a third of respondents highlighted margin erosion as the main factor for these difficulties. An increasing number of corporates – 26% versus 15% last year – reported rising raw material prices were affecting their buyers’ ability to pay on time. In contrast, slower domestic growth was mentioned by just 14% of respondents, versus 27% last year, with this decrease likely due to the region’s post-pandemic economic normalisation.

Payment delays and cash flow risks often go hand in hand, but Coface says that this year’s data bucks that trend. To assess cash flow risks, the insurer studies the ratio of what it calls ultra-long payment delays (ULPDs), which are delays of over 180 days. Coface says that across the world, 80% of these extremely late overdue invoices are never paid, and when ULPDs constitute more than 2% of annual turnover, they represent a risk to a company’s financial situation.

This year, the proportion of Asian corporates with ULPDs exceeding 2% of annual turnover fell to 26%, down from 34% last year. What’s more, the number of companies reporting ULPDs exceeding 10% of annual turnover dropped to 9.5%, down from 14% last year.

As a result, corporates in the region are overall more optimistic about cash flow, with 53% saying they expect to see an improvement this year. The percentage of respondents anticipating improved sales performance in the coming year has also risen to 57%, from 52% previously. Coface’s poll furthermore revealed a more positive take on the economy among corporates, with 77% of respondents anticipating higher growth in 2023.

Despite this more buoyant outlook, Asia’s corporates aren’t out of the woods yet, cautions Bernard Aw, Coface’s chief economist for Asia Pacific.

“The continuation of the war in Ukraine, escalating US-China technological rivalry, subdued demand in the US and European markets, high inflation and aggressive interest rate hikes that contributed to tighter monetary and financial conditions will continue to weigh on Asian consumers and businesses in 2023,” he says.