Adopting strong credit risk management strategies and tools plays an important role in protecting businesses against customers failing to pay, experts said.

“Payment Practice Barometer Vietnam”, a report recently released by Atradius, a global provider of credit insurance, confirmed the need for strong strategic credit management.

It said that 51 per cent of companies reported that they manage customer risk in-house even when it means a strain on their resources and prevents a company of using those funds to expand their business. On the other hand, 42 per cent either outsourced the issue to a credit insurer or purchased specific trade finance solutions.

Vu Thi Duc Hanh, country manager of Atradius in Viet Nam said, "adopting strong credit risk management strategies and tools plays an important role in protecting your business against customers failing to pay you. It also means access to in-depth risk information on your potential customers and regular market intelligence. A tool like trade credit insurance can help businesses improve says sales outstanding (DSO) and free up working capital".

According to the report, selling on credit is common among Vietnamese businesses, primarily to encourage repeat business among existing loyal and trusted customers. However, almost half of the total value of business to business (B2B) sales on credit remained unpaid at the due date, posing a potential risk to businesses’ cash flow.

The report shows that more than half, about 58 per cent, of the transaction value of B2B sales was made based on credit in the past months and up to 48 per cent of this is overdue. In addition to that, 6 per cent of the amount are write-offs.

The research is based on interviews with 200 accounts receivable managers in Viet Nam during the second quarter of 2022, by CSA Research, an US-based independent market research company. The 200 companies who participated in the survey are from agricultural and food, steel/metals, chemicals, consumer durables and textiles/clothing.

Despite the effects of the pandemic and concern about supply chains being threatened with disruption by global economic instability, a generally positive outlook was revealed among businesses in Viet Nam. All companies polled in the Vietnamese market expect payment practices of their B2B customers to improve in the coming 12 months, while another strong indication of business confidence in the Viet Nam market is that a significant number of companies also anticipate an increase in trading on credit as they consider customer loyalty and repeat business from established B2B customers to be a driving force behind their business growth.

The Atradius Payment Practices Barometer is an annual survey of B2B payment practices in markets across the world, which is implemented based on in-depth interviews with B2B businesses across Asia, Australia, Europe and North America to provide insights into the payment behaviours of customers. It contains direct feedback from businesses in a given market or region about how they manage payment default risks related to selling on credit to B2B customers.

This the first time the survey has been conducted in Viet Nam. — VNS