A recent survey by Coface (France based company, the world’s leading trade receivables management company), on credit management systems used by Indian companies has come out with some interesting findings. The objectives of the survey were to understand the general status of credit management used by India companies, the domestic payment experience and the impact of the credit crises and how it has affected the payment behaviour of debtors.
Elaborating on the survey, Mr. Samuel Jesuratnam, Country Head, Coface India said, “The survey aims to understand the overall status of the credit management systems used and the domestic payment experiences of companies based in India. Although Indian companies have adopted a more cautious approach in terms of managing their credit, open account is still the main payment mode offered by more than 60% of the companies.”
One of the major findings of the survey is that the risk of default in payment in India is the highest amongst proprietary firms, with a 37% share. Private limited companies with 26% and partnership firms with a 21% share respectively are the second and third highest in terms of risk of default. Government departments are the safest.
The survey, conducted for the second time in India also states that the standard payment terms for most companies are around 30 days and most industries offer a maximum of 60 days credit terms to their clients. Long term overdues (above 1 year) are frequent in sectors like computer & peripherals, food & beverage, services, textile & clothing. Short term overdues (between 6-12 months) are frequent in sectors like agriculture, consumer/industrial electronics, telecom, IT, paper & packaging and shipping.
The survey found that 53% of the companies covered expect the impact of the global financial crisis on payments to start easing by the middle of 2010 in India. Another 28% expect it to happen by end of 2010 and 19% of them felt that it has started easing by end of 2009 itself.
Although 2/3rd of companies have proper credit management procedures, surprisingly only 6% have their own Credit Management Department. Also surprising is that companies do not extensively use third parties (information agencies / public information) while the survey found that most companies who extended payment terms did so due to the financial difficulties faced by their debtors.
The use of open account payment terms, a relatively unknown practice more than ten years ago, has now become common practice in India and other countries. The survey results show that this development of open accounts is not only used to face market competition in a competitive environment but also used to retain existing clients.
Methodology:
The survey covered 905 companies spread over 23 sectors in India.
Interviewed companies are divided up as follows:
• 149 are private limited companies, 732 are public limited companies, 14 are proprietary concern, 4 are partnership firms flowed by 3 government owned companies, 2 foreign companies and 1 joint venture company.
• 760 are in manufacturing, 78 in services, 61 are in trading and wholesale and 6 in retailing sectors.