Atradius Payment Practices Barometer

Atradius Payment Practices BarometerInternational survey of B2B payment behaviour

Core results Japan

Results OCtOBeR 2011

AtRAdIus PAyment PRACtICes BAROmeteR - Results OCtOBeR 2011

2

Copyright by Atradius N.V. · October 2011 Published by Atradius Corporate Communications & Marketing The survey was conducted by Heliview Research, Breda

http://www.atradius.jp

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COuntRy RePORt JAPAn

1 Executivesummary

1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1.2 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

1.3 Core results Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

2 Useoftradecredit

2.1 sales on credit terms (domestic/foreign) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2.2 trade credit supply determinants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

3 Creditmanagementpractices

3.1 Average payment terms (domestic/foreign). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

3.2 Payment terms determinants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

3.3 early payment discounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

3.4 use of credit management tools: first half 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

3.5 trend in the use of credit management tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

4 Customers’paymentbehaviour

4.1 Average payment durations and average payment delays . . . . . . . . . . . . . . . . . . . . . 13

4.2 Overdue B2B invoices (domestic/foreign) – Payment timing . . . . . . . . . . . . . . . . . . 14

4.3 main reasons for payment delays from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

4.4 uncollectable receivables (domestic/foreign) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

5 Cashinflowmonitoring

5.1 Average days sales Outstanding (dsO): first half 2011 . . . . . . . . . . . . . . . . . . . . . . . 18

5.2 dsO trend over the past year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

6 Surveydesign

6.1 survey background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

6.2 survey objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

6.3 structure of the survey. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

6.4 survey scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

6.5 sample overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

legal disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

your contact at Atradius. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

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1 exeCutIve summARy

1.1 Introduction

This report is a part of the 10th edition of the Atradius Payment Practices Barometer. It focuses on Japan, examining the primary aspects of the country’s trade credit supply and management, as well as the payment behaviour of its international and domestic trading companies.

The objectives of this individual country report is to provide companies trading internationally with a better understanding of the trade dynamics of the countries with which they do business, or plan to do business. Without an accurate understanding of the payment practices of both domestic and foreign customers, companies can encounter serious cash flow problems.

The report therefore looks at a series of key areas of Japanese companies’ trade credit and credit management policies, includ-ing the extent in which trade credit is granted to customers, the payment terms set for customers, the resultant incidence of late or non-payment, and the actions taken to mitigate payment risks.

The October 2011 Payment Practices Barometer is available on the Atradius website at www.atradius.com.

1.2 Conclusions

Senior Underwriter for Japan and SE Asia, Michael Frigo, com-mented: “There has always been a clear moral obligation towards honouring payment in Japan together with a high degree of busi-ness ethics which contribute to a very limited occurrence of pro-tracted default. This approach is also underpinned by banks, which offer strong support to struggling companies. However, the recent earthquake and Fukushima nuclear accident have highlighted the issue of potential unforeseen risks when trading internationally and immediately following the disaster we witnessed some reschedul-ing of payments to help address the disruption. More recently due to the effects of the earthquake coupled with the global economic issues, we have seen an increase in the rates of insolvency in some sectors although, overall, our experience of payment default has remained low in Japan.”

Japanese companies were the least active of all across the survey in selling on credit terms, especially in an export context, evi-dencing an aversion to risk that was unsurpassed by any other surveyed country. Just 30% of Japanese B2B sales were made using trade credit, with 80% of these sales involving domestic buyers, mirroring a caution that will have been exacerbated by the contractions of the Japanese economy at certain times in re-cent years.

The reasons provided by Japanese respondents for their decisions to extend trade credit were significant in this respect. The high-est prioritisation was accorded to the creation of long-term sales relationships, which was selected by almost half of the respond-ents as the key driver of their decisions to extend credit. This mirrored the desire of Japanese companies to build deeper trade relationships. The desire to build trade relationships was the most frequently reported determinant, cited again by around half of respondents, for average payment terms that were matched for length only by Taiwan among the surveyed countries.

In terms of customer behaviour, Japanese businesses were faced with two differing scenarios. Despite the 5 day longer average terms extended on domestic receivables, these were paid an av-erage 37 days before export payments, which were reported at

their longest by the manufacturing and financial sectors. This, and data showing that an average 26% of foreign receivables still went past due date, indicated the greater difficulties for Japanese respondents in securing foreign payments and hence their reluc-tance to sell on credit to foreign buyers.

Several strands of evidence indicated that Japanese companies are prepared to accept this situation. Even in the face of the low liquidity among buyers cited as a major reason for payment de-lays, Japanese businesses were extremely reluctant to offer early payment discounts for their B2B receivables. In addition, the use by businesses of credit management tools came in below the re-gional averages.

However, the key payment receipt signals were in line with, or slightly better than those of the Asia-Pacific region. 3% of in-voices were uncollectable, matching the survey average, but 1% was lower than the Asia-Pacific mean. Respondents’ DSO was also just one day higher than the 52 day Asia Pacific average, and has stayed at the 2010 level for 98% of surveyed Japanese companies.

Mention should be given to some notable patterns observed among Japan’s micro-companies. This segment was the most risk-averse of all, making 23% of their B2B transactions on cred-it, and only 2% of their receivables were uncollectable, the low-est of any size of Japanese business.

Key industry trends noted in the survey included a 69 day av-erage domestic payment terms offered by Japan’s financial sec-tor. This was more than double the mean for this industry in the overall survey, helping to bring overdue invoices down to a re-markable 3% domestic and 5% foreign and uncollectable invoices to as low as 1% for domestic business.

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1.3 Core results Japan

77 30% of Japanese sales were made using trade credit, the lowest percentage in the survey. An average 80% of B2B credit sales involved domestic customers.

77 Japan’s micro-companies were shown to be the most risk-averse of all the business sizes, selling just 23% of their B2B transactions on credit.

77 Creating long-term sales relationships with customers was prioritised by the greatest proportion of companies (49%) as a determinant of trade credit. A lower priority was accorded to using trade credit as a sales promotion tool, and granting credit as a source of short-term finance to customers.

77 Japan’s 38 day average payment terms was, along with Taiwan, the longest among the surveyed Asia Pacific countries. However more caution was shown with regard to foreign terms, which averaged 33 days.

77 B2B payment terms offered by Japanese respondents were directly linked to their size. The longest terms were offered by the largest companies, and the shortest by the smallest businesses.

77 Building trade relationships was the most reported payment terms determinant, cited by around half of the Japanese respondents. A high, but lesser priority was given to company standard payment terms and credit capacity of the customer.

77 15% of Japanese respondents offered discounts for early payment of invoices, the second lowest in the survey, with only Swedish respondents less inclined to discounts early payment. The averages for Asia Pacific and the wider survey were 48% and 40% respectively. Where discounts were available, they were taken advantage of by 30% of domestic customers and 21% of foreign customers.

77 Japan’s use of credit management tools mainly fell below regional averages. Less than 30% reported using the options of checking a buyer’s credit worthiness, active credit management, checking a buyer’s track record and other risk mitigation techniques.

77 Japanese businesses received domestic payments much earlier (average 25 days) than export payments, for which the 62 day average was the highest in the survey.

77 Relatively few Japanese invoices fell overdue, especially domestic B2B invoices (average 18%). For the Asia-Pacific region and overall survey 30% and 31% of invoices respectively. 26% of foreign receivables went past due date.

77 A range of determinants for B2B payment delays were reported by Japanese respondents, with the greatest prioritisation given to insufficient availability of funds. This was cited by 42% for domestic delays and 37% for foreign delays. Incorrect information on the invoice was also referred to as a key reason for domestic delays.

77 Assisted by the relatively lower level of invoices which became overdue, uncollectable Japanese invoices stood at 3%, matching the survey average.

77 The days sales outstanding (DSO) was just one day higher than the 52 day Asia Pacific survey average.

77 Japan’s DSO trend in the survey was the most stable of the 27 countries surveyed. 97% of respondents reported no change from 2010.Financial services respondents were the most likely to have experienced an increase in their DSO.

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2 Use of trade credit

77 30% of Japanese sales were made using trade credit

77 80% of credit sales were to domestic customers

77 Japan’s micro-companies are the most risk-averse

77 Creating long-term sales relationships with customers drove credit sales

2.1 Sales on credit terms (domestic/foreign)

Survey respondents in Japan least likely to use trade credit

The average 30% of B2B sales that were reported to have been made on credit terms by Japanese companies was the lowest in the survey. The second lowest percentage of respondents offer-ing trade credit was Belgium (42%). This extremely risk-averse stance may be linked to the protracted sluggishness of Japan’s economy, and those of many Western markets into which its goods are sold. The risk aversion was heavily skewed towards foreign B2B customers. An average of 80% of credit-based sales involved domestic customers, and 48% of respondents offered no credit terms at all to foreign customers.

By business size

Japan’s smallest companies proved to be the most risk-averse

Japanese micro-enterprises offered trade credit less frequently than their bigger counterparts, consistent with the more risk-averse stance that tends to prevail among smaller companies globally (shown by the overall survey: 51% of micro-enterprise sales involved cash). Micro-sized respondents made an average 23% of their B2B sales on credit, but this was exclusively target-ed at domestic customers. A low propensity for using trade credit

was also exhibited by small and large Japanese respondents (29% and 31% of sales respectively). The highest level of appetite for extending credit was shown by medium/large enterprises (aver-age 40%). However 34% of the trade credit from medium/large enterprises was provided to foreign customers, a higher level than large and small enterprises (27% and 20% respectively).

By business sector

Wholesale/retail/distribution and services respondents used trade credit most actively

The least receptive industries to the use of trade credit were Japan’s wholesale/retail/distribution companies and its service businesses, with 27% and 28% of respondents selling on credit. The financial sector respondents (47%) were the most inclined to sell on credit. Appetite for export credit on B2B sales was at its greatest among Japanese respondents in the manufacturing and financial services industries (average 29% and 25% of credit sales to foreign customers). Japan’s services sector extended trade credit on only 13% of its sales to foreign customers.

What percentage of the total value of your annual B2B sales (domestic and foreign) are made on a cash basis/credit terms?

Cash sales Credit terms

70 %

30 %

52 %

48 %

43 %

57 %

Japan Asia/Pacific Overall survey

Sample: all interviewed companies Source: Atradius Payment Practices Barometer – October 2011

What percentage of the total value of your B2B credit sales are to domestic/foreign customers?

B2B domestic customers B2B foreign customers

80 %

20 %

66 %

34 %

75 %

25 %


Sample: interviewed companies with credit sales Source: Atradius Payment Practices Barometer – October 2011

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2.2 Trade credit supply determinants

A push to develop sales relationships drives Japan’s use of trade credit

The desire to establish long-term sales relationships with custom-ers was by far the most important determinant for selling on credit cited by Japanese businesses. 49% of respondents accord-ed the greatest priority to this reason, very much in line with the wider Asia-Pacific and overall survey (average 50% and 46% re-spectively). Other factors were much less frequently considered to be key determinants. These include factors such as a sales pro-motion tool (19% of respondents) and as a source of short-term finance to customers (17%), Confirming the quality of the product before payment was cited by 15% of Japanese respondents as a key driver of sales made on credit.

By business size

Japan’s smallest companies extend credit to deepen relationships

56% of Japan’s micro-enterprises reported that they offered trade credit to establish long-term sales relationships with custom-ers, which may be seen as a clue to the desire to expand. This prioritisation was higher than in any other sector, where it was reported by 44% of large companies, 46% of small companies and 44% of medium/large businesses. Small Japanese companies emerged as the most active proponents of two other key trade credits determinants. 26% and 22% of respondents of this size category cited as a sales promotion tool and confirming the quality of the product before payment as the most important determinant for selling on credit.

By business sector

Manufacturing and services keenest on sales relationships rationale

Japan’s manufacturing and services companies were slightly keener to use trade credit as an expansion tool than other indus-tries. An average 52% and 50% respectively of these respondents cited long-term sales relationships with customers as their key motivation for using trade credits more frequently than whole-sale/retail/distribution and financial services respondents (46% and 44%).

Two other trends stood out as key drivers in the behaviour of Japanese businesses in their use of credit. 30% of wholesale/retail/distribution sector companies highlighted trade credit as an effective sales promotion tool, while 33% of financial services companies cited source of short-term finance.

What are the main reasons that your company grants trade credit to its B2B customers?

percentage

to establish long lasting trade relations

with customers

49 50

46

As a sales promotion tool

19 16

19

to allow customers time to confirm

the quality of the product before payment

17 20

18

As a source of short term finance

15 14

16


Sample: interviewed companies with credit sales Source: Atradius Payment Practices Barometer – October 2011 that rank respective aspect most important

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3 CRedIt mAnAgement PRACtICes

3 Credit management practices

77 Japanese payment terms were the longest among the surveyed Asia-Pacific countries

77 Payment terms offered by Japanese respondents were directly linked to their size

77 Trade relationships was the most reported payment terms determinant

77 Use of early payment discounts in Japan amongst the lowest in the survey

77 Japan’s use of credit management tools mainly below regional averages

3.1 Average payment terms (domestic/foreign)

No Asian country offered longer payment terms than Japan

When compared to their peers in the Asia-Pacific region, Japa-nese respondents offered relatively long payment terms, averag-ing 37 days. These terms were matched only by Taiwan in the Asia-Pacific region, and were significantly longer than the 26-30 day survey mean. Japanese respondents’ average payments terms were more than 5 days longer for domestic sales than for foreign sales (38 days domestic: 33 days foreign), tying in with their more cautious approach to export credit.

By business size

Payment terms offered by Japanese respondents were directly linked to their size

A strong symmetry was found in the analysis by size. The longest payments terms in Japan were offered by the largest companies, which extended 42 and 39 days to their domestic and foreign customers respectively. The figures for medium/large, small and micro-enterprises were 40 days, 36 days and 34 days respective-ly for domestic payment terms, and 31 days, 29 days and 30 days respectively for export payments. This demonstrates a clear link to company size in Japan.

By business sector

Manufacturing and financial services respondents offered the longest payment terms

The domestic payment term offered by Japan’s financial services sector (average 69 days) stood out, representing more than dou-ble the mean for this industry in Asia-Pacific and the overall sur-vey (33 day average for both).

Payment terms extended by Japan’s manufacturing respondents were also significantly higher than the overall survey mean of 39 days. This industry offered 46 and 43 day terms to its domestic and foreign customers, mirroring its longer cash conversion cy-cles. The most cautious payment term was the 22 day domestic terms offered by wholesale/retail/distribution respondents.

What payment terms does your company set for its domestic/foreign B2B customers?

percentage average days

Japandomestic

foreign

69 18 8 5

77 15 1 7

38

33

Asia/Pacificdomestic

foreign

81 12 5 3

73 19 5 3

31

33

Overall surveydomestic

foreign

78 12 7 3

71 20 6 3

34

35

1-30 days 31-60 days 61-90 days Over 90 days

Sample: interviewed companies (active on domestic and foreign markets) Source: Atradius Payment Practices Barometer – October 2011

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3.2 Payment terms determinants

Trade relationships were the most reported payment terms determinant

The key rationale among Japanese businesses in setting their payments terms was almost identical to the Asia Pacific survey mean. 52% and 49% respectively of respondents cited trade rela-tionship with the customer as their key domestic and foreign pay-ment terms determinant, compared to the overall survey find-ings (49% domestic and foreign). 39% and 40% of respondents prioritised company standard payment terms in setting domestic and foreign payments terms respectively, while a 40% and 41% respectively cited credit capacity of the customer.

The response in both cases was again very near to the Asia-Pa-cific mean. Several other responses are worth noting. The avail-ability of credit insurance cover was cited as a key determinant in establishing domestic and foreign payment terms by 21% and 31% of Japanese companies respectively. The determinant accorded the least priority was government regulations (8% domestic/4%foreign).

By business size

Little variation shown by size

Headed by trade relationships, the weightings above were mainly replicated throughout the four sectors. Also of note was that just 4% of medium/large enterprises accorded importance to compe-tition as a key export terms determinant. Industry standard terms was prioritised by 30% of micro-companies and 24% of small en-terprises for domestic sales.

By business sector

Credit availability prioritised for wholesale/retail/distribution exports

The selection of trade relationship with the customer and company standard terms as payment terms determinants was significantly weighted by respondents in all four sectors. Aside from this, 50% of wholesale/retail/distribution respondents cited credit avail-ability as a key foreign determinant.

Top 3 payment terms determinants (domestic/foreign)

percentage

trade relationship with the customer53

49

Japan Company standard payment terms39

41

Credit capacity of the customer41 41


45

Asia/Pacific Company standard payment terms33

37

Credit capacity of the customer23

27


47

Overall survey Company standard payment terms42

39

Credit capacity of the customer36 36


Sample: interviewed companies (active on domestic and foreign markets) Source: Atradius Payment Practices Barometer – October 2011

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3.3 Early payment discounts

Early payment discount levels in Japan one of the lowest in the survey

Compared to the Asia Pacific and wider survey averages (48% and 40% respectively) the use of early payment discounts by Japanese respondents was extremely low. Only 15% of respond-ents offered discounts for early payment of invoices, a level that was the second only to Sweden (11%). This suggests that Japanese companies generally favour full payment over fast pay-ment. However with the lowest rate of late payments, motivating early payment is not needed. 30% of domestic customers and 21% of foreign customers who were offered early payment dis-counts took advantage of them.

By business size

Micro-enterprises showed the lowest propensity to offer early payment discounts

Just 7% of the surveyed Japanese micro-enterprises offered ear-ly payment discounts, reiterating that this category of business lacks the business scope to accept anything but full payment.

A much greater willingness to discount was exhibited by large enterprises (average 17%), small enterprises (20%) and small businesses (22%). Customers of small and large companies were the most likely to take advantage of the discounts, 19% in each case. Just 4% of customers of micro-businesses took advantage of early payment discounts.

By business sector

Japanese manufacturers were more inclined to discount early payment of their invoices than other industries

Given that manufacturers experience longer than average cash conversion cycles, it was a little surprising that only 18% of sur-veyed Japanese manufacturers offered early payment discounts. However, the percentage of companies offering discounts fell to 16%, for wholesale/retail/distribution companies, 14% for finan-cial services companies and 11% for services companies. None of the customers of services companies took advantage of early payment discounts

3.4 Use of credit management tools: first half 2011

Japan’s use of credit management tools mainly fell below regional averages

Japanese businesses appeared to be among the least inclined in the region to use the range of credit management tools at their disposal. Only in one regard did more than one third of Japanese survey participants report using a regular form of risk mitigation:

this concerned the 40% of respondents that responded that they sell on cash terms. Less than 30% were observed to use the op-tions of checking a buyer’s credit worthiness, active credit man-agement, checking a buyer’s track record, reducing reliance on a single buyer, requesting secured forms of payment, monitoring buyer credit risk and using credit insurance.

Does your company discount early payment of invoices?

yes no

15 %

85 %

48 %

52 %

40 %

60 %



What percentage of your domestic/foreign B2B customers take advantage of the early payment discount?


15 %

12 %

30 %

28 %

26 %

26 %


Sample: interviewed companies that discount early payment (that sell products or services abroad) Source: Atradius Payment Practices Barometer – October 2011

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By business size

Larger companies check buyer credit worthiness and request secured payments

By size, the most preferred credit management tools were checks on a buyer’s credit worthiness (44% of medium/large respond-ents), and requesting a secured form of payment (44% of large companies).

By business sector

Retaining a collections agency was seen as a low priority

Retaining a collections agency was a lower priority. Of the four major business sectors, financial services respondents (22%) were most inclined to use this credit management option.

How do you protect your business against payment default?

percentage

sell on cash terms

40 35

34

Check buyer’s credit worthiness

34 40

38

Check buyer’s track record

31 42

37

monitor buyer’s credit risk

31 35

30

Active credit management

(credit checks, dunning)

27

36 35

Reserve against bad debts

23 29

22

Reduce reliance on a single buyer

19 27

22

use credit insurance

19 31

22

Request secured forms of payment

18 33

27

self insure

12 20

14

Retain a collections agency

7 18

19



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3.5 Trend in the use of credit management tools

Japanese businesses showed no significant uptake of credit management tools in the first half of this year

Three credit management tools showed significantly increased usage in Asia Pacific (35% or more of the respondents) during the first half of 2011: monitoring buyer risks, checking buyer credit worthiness, and using secured forms of payment.

However no Japanese companies reported using these tech-niques at a frequency above the regional average compared to the second half of 2010.

By business size

Buyer credit worthiness was an area of increasing diligence

By size, an increase in checking buyer credit worthiness was re-corded by 26% of medium/large companies, 27% of large compa-nies and 29% of medium/large companies.

By business sector

The financial sector lifted its diligence in three areas

Japan’s financial services industry showed a noteworthy uptake in its H1 2011 usage of three tools: monitoring buyer risks and checking buyer credit worthiness (56% each) and using secured forms of payment (44%).

In the first half of 2011 (compared to the second half of 2010) how have your credit management practices changed?

percentage

Checking of buyer’s credit worthiness 21 61 4 14

dunning 17 60 6 17

monitoring of buyer’s credit risk 16 67 5 12

hedging against exchange rate risk 11 53 4 34

use of self insurance 8 51 5 37

use of credit insurance 6 52 4 37

use of secured forms of payment 6 76 2 16

use of outsourced collections 5 50 5 40

use of early payment discounts 4 60 4 32

Increased no change decreased not applicable

Sample: all interviewed companies from Japan Source: Atradius Payment Practices Barometer – October 2011

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4 CustOmeRs’ PAyment BehAvIOuR

4 Customers’ payment behaviour

77 Japanese businesses received domestic payments much earlier than export payments

77 The level of overdue invoices were below regional average, especially for domestic

77 Payments most often delayed by customer illiquidity and incorrect invoicing

77 Japanese uncollectable invoices stood at 3%, the survey average

4.1 Average payment durations and average payment delays

Japanese businesses experienced a 37 day domestic and foreign payment disparity

Looked at purely from the domestic side, payment durations re-ported by Japanese respondents were prompt, being received in an average of 25 days, well in advance of the average 38 day payment due date.

However payments from foreign customers averaged 62 days, the slowest of the surveyed countries. This tardiness emphasizes Japanese respondents’ reluctance to offer credit terms to foreign buyers.

By business size

Businesses of all sizes experienced consistent domestic payment times

There was a relatively high level of consistency in the payment durations reported by Japanese companies of every size for their domestic sales.

Micro-enterprises reported the promptest payments (average 23 days), and large companies (27 days) the longest payment dura-tions. Foreign payments to micro Japanese companies took an average 100 days, which seems likely to have been skewed by a small sample of micro companies offering credit to foreign buy-ers.

By business sector

Foreign payments skewed for manufacturing/financial services

Only wholesale/retail/distribution and service companies (aver-age 45 days and 56 days respectively) fared better in respect to the poorer-performing export payments plaguing Japanese com-panies. 71 day and 82 day durations were recorded by Japan’s manufacturing and financial sectors.

Replicating the business size trends, every Japanese industry surveyed was characterised by prompt payment for domestic sales, ranging from an average 22 days for service companies to 30 days for the manufacturing companies.

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4.2 Overdue B2B invoices (domestic/foreign) – Payment timing

Japan’s proportion of overdue invoices lower than regional/survey averages

The overdue invoices experience of Japanese businesses reflects a stronger payment culture than that of the Asia-Pacific region overall. 18% of respondents’ domestic invoices went overdue, far below the 30% and 31% figures shown in the Asia-Pacific region and the overall survey means. Just 6% were paid after 90 days (delinquent). Despite the much longer export payment durations, no more than 26% of foreign sales were reported as overdue.

By business size

Overdue invoices worst for medium/large company export sales

The worst overdue invoice experience was reported by Japan’s medium/large respondents (an average 34% for foreign pay-ments). This was 1% higher than the Asia-Pacific regional mean for this size company.

By contrast, the level of foreign overdue invoices reported for micro businesses was just 3%, which is likely to reflect the great-er caution among these companies with regard to payments.

By business sector

Low overdue invoices in financial services/manufacturing sectors

Japanese companies surveyed in the financial services sector produced an outstanding overdue invoices performance, with av-erages of just 3% of domestic and 5% of foreign invoices overdue in a region generating a 36% average for domestic and foreign invoices overall.

Japanese manufacturing companies also outperformed all bar their Danish peers, reporting average of 23% and 19% for do-mestic and foreign overdue invoices respectively.

Domestic/foreign B2B overdue invoices - Payment is made between….

percentage

Japandomestic

foreign

52 23 17 4 4

44 22 24 6 4

Asia/Pacificdomestic

foreign

49 19 19 6 7

49 17 21 7 6

Overall surveydomestic

foreign

51 19 18 6 6

52 17 19 6 6

1-15 days late 16-30 days late 31-60 days late

61-90 days late Over 90 days late

Sample: interviewed companies with overdue invoices Source: Atradius Payment Practices Barometer – October 2011 (active on domestic and foreign markets)

What percentage of your domestic/foreign B2B invoices are overdue?


18 %

26 %

30 %

32 %

31 %

30 %


Sample: all interviewed companies (that sell products or services abroad) Source: Atradius Payment Practices Barometer – October 2011

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4.3 Main reasons for payment delays from customers

Payments were most delayed by customer illiquidity and incorrect invoicing

Japanese respondents reported a range of reasons for B2B pay-ment delays. The most frequently cited by were: 42% for do-mestic delays and 37% for foreign delays - given to insufficient availability of funds. Incorrect information on the invoice was also prioritised as a key reason for domestic delays by 40% of Japa-nese respondents (regional average 29%) and by 30% as a key driver for foreign payment delays (regional: 32%).

Complexity of the payment procedure emerged as the most im-portant reason for all surveyed Asia-Pacific respondents, and Japanese respondents highlighted it as a key domestic factor by 27% of respondents and a key factor in foreign delays by 25% of respondents).

By business size

Disputes over goods delayed few payments to micro-businesses

Japanese micro-enterprises were not inclined (0% of respond-ents) to cite the quality of goods as a reason for domestic pay-ment delays. In this context, they were also less likely (9%) to highlight goods or services delivered failing to correspond with the contract (other size businesses: minimum 27%).

By business sector

Insufficient funding was prominantly highlighted by two industries

Analysed by sector, insufficient availability of funds was cited as the key reason for payment delays by 50% of financial services respondents and 46% of wholesale/retail/distribution respond-ents.

What are the main reasons for payment delays by domestic B2B customers?

percentage

Insufficient availability of funds

42

48 60

Incorrect information on invoice

34 29

19

Complexity of the payment procedure

27 35

24

goods delivered or services provided

do not correspond to what was agreed

in the contract

23 32

17

dispute over quality of goods delivered

or service provided

19 30

20

Inefficiencies of banking system

18 29

21



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What are the main reasons for payment delays by foreign B2B customers?

percentage

Insufficient availability of funds

40

37 42

Complexity of the payment procedure

36 45

37

Incorrect information on invoice

33 32

24

dispute over quality of goods delivered

or service provided

33 37

26

Inefficiencies of banking system

31 44

34

goods delivered or services provided

do not correspond to what was agreed

in the contract

24 32

22



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4.4 Uncollectable receivables (domestic/foreign)

Japanese uncollectable invoices matched the survey mean

Aligning with the survey average, an average 3% of domestic and foreign receivables were reported as uncollectable by respond-ents in Japan. This was one percentage point lower than the fig-ures for the Asia-Pacific region, which averaged 4% for domestic and foreign uncollectable invoices.

Japan’s collections performance in the regional context may be a result of the relatively lower level of invoices which became overdue.

By business size

Micro-enterprises reported the lowest level of uncollectable invoices

Respondents from micro-enterprises recorded the best perfor-mance. Just 2% of their domestic and foreign B2B invoices were uncollectable. Larger enterprises, though they typically have more resources available to manage receivables, they also have more receivables to chase leaving greater opportunity for delay and default.

This is reflected in the experience of Japan’s medium/large com-panies, for whom over one third of foreign business invoices went overdue, and an average of 4% uncollectable, more than any other size of respondent.

By business sector

Financial services produced a notable performance

Measured by industry, Japan’s financial services sector collected all but 1% of their domestic B2B invoices. Just 1% were never collected, a situation which would seem to be underpinned by the small volume of receivables (average 3%) that went overdue.

Manufacturing sector respondents reported a 4% average for un-collectable foreign invoices, despite a relatively low amount of overdue invoices (average 19%).

Over the last six months, what percentage of the total value of your B2B receivables (domestic/foreign) were uncollectable?

domestic uncollectable B2B receivables

foreign uncollectable B2B receivables

3 %

3 %

4 %

4 %

3 %

3 %



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5 Cash inflow monitoring

77 Average DSO was just one day higher than the 52 day average for the Asia-Pacific region

77 98% of companies recorded no change in DSO in the first half of 2011

5.1 Average Days Sales Outstanding (DSO): first half 2011

The 53 day DSO was marginally higher than the Asia-Pacific average

Influenced by their 62-day average delays in foreign B2B pay-ments Japanese companies recorded an overall 53-day DSO for the first half of 2011. This figure will also have been influenced by very limited amount of early payment discounting and a rela-tively low use of credit management tools. In a regional context, Japan’s DSO was just one day higher than the 52 day average for the Asia-Pacific region.

By business size

Small enterprises reported the highest DSO

Analysed by business size, Japan’s small enterprises reported the highest DSO, averaging 71 days. This was significantly above the regional average for small enterprises of 56 days. All the other three size categories in Japan reported average DSO of less than 53 days.

By business sector

Manufacturing sector DSO the longest by sector

An average DSO of 62 days reported by Japanese manufacturing respondents was the highest by industry, comparing to regional and survey averages of 55 days and 54 days respectively. Among the key factors behind this outcome was the average 71 day du-ration for export payments for this sector and a relatively high proportion of foreign uncollectable receivables.

The DSO for the wholesale/retail/distribution sector, (49 days), the services industry, (50 days), and the financial services sector, (51 days), all aligned tightly with regional averages.

What is your company’s average DSO (Days Sales Outstanding) for the first half of 2011?

average days

Japan 53

Asia/Pacific 52

Overall survey 50


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5.2 DSO trend over the past year

Only 2% of companies recorded a DSO increase

Japan’s DSO trend in the survey was the most stable of the 27 countries surveyed. 97% of respondents reported no change in their DSO in the first half of 2011, while just 2% reported an increase, and 1% a decrease.

By business size

Large enterprises most likely to have reported an increase in DSO

By size, Japan’s medium/large enterprises were the most likely to have experienced a change in their DSO (3%cited an increase, and 5% a decrease). Also of note was the 6% of large enterprises which reported an increase in DSO (94% reported no change). Among small Japanese businesses, 2% of respondents reported a DSO increase (98% no change).

By business sector

Financial services sector recorded highest percentage of respondents whose DSO rose

The greatest level of DSO change was observed among Japan’s fi-nancial services sector: 11% of respondents reported an increase in their DSO, while 89% cited no change.

In the wholesale/retail/distribution and manufacturing industry respondents, 3% and 2% respectively reported an increase in DSO (97% and 98% reported no change).

Has your company’s average DSO changed compared to the same period a year ago?

percentage

Japan 2 97 1

Asia/Pacific 27 63 10

Overall survey 23 68 9

Increase no change decrease


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6 suRvey desIgn

6.1 Survey background

Atradius conducts regular surveys of corporate payment be-haviour across a range of countries; its findings published in the Atradius Payment Practices Barometer. From its inception in 2006, when 1,200 companies from six European countries were interviewed for their views of their business partners’ payment behaviour, the twice yearly Atradius Payment Practices Barom-eter has grown in scope each year.

In the second survey of 2011 (the tenth in the series) approxi-mately 5,400 companies from 27 countries worldwide (Austral-ia, Austria, Belgium, Canada, China, Czech Republic, Denmark, France, Germany, Great Britain, Greece, Hong Kong, Hungary, In-donesia, Ireland, Italy, Japan, Mexico, Netherlands, Poland, Sin-gapore, Slovakia, Spain, Sweden, Switzerland, Taiwan and USA) have been surveyed.

6.2 Survey objectives

The 10th edition of the Atradius Payment Practices Barometer addresses the following research questions:

Use of trade credit

77 Annual B2B sales (domestic/foreign): % split sales made on a cash basis/credit terms

77 B2B credit sales: % split domestic/foreign customers

77 Trade credit supply determinants

Credit management practices

77 Average payment terms (domestic/foreign) granted to customers

77 Payment terms determinants

77 Discounts for early payment of invoices (acceptance rate from customers)

77 Current use of credit management tools

77 Trend in the use of credit management tools (overtime comparison)

Customers’ payment behaviour

77 Average payment durations and payment delays (domestic/foreign) at country level

77 % of overdue B2B invoices and payment timing from customers

77 Main reasons for payment delays from customers

77 Uncollectable receivables (domestic/foreign)

Cash inflow monitoring

77 Average DSO at country level

77 DSO trend over the past year

6.3 Structure of the survey

77 Determining the appropriate company contact for accounts receivable management

77 Ascertaining the interviewed company’s industry and size

77 Ascertaining the industries and countries the company does business with

77 Assessing the extent to which survey respondents use trade credit in their B2B transactions

77 Focusing on the main credit management practices in each country surveyed

77 Focusing on the following topics: · customers’ payment behaviour · cash inflow monitoring (current DSO and its trend)

6.4 Survey scope

Basic population

77 Companies from 27 countries were monitored: Australia, Austria, Belgium, Canada, China, Czech Republic, Denmark, France, Germany, Great Britain, Greece, Hong Kong, Hungary, Indonesia, Ireland, Italy, Japan, Mexico, Netherlands, Poland, Singapore, Slovakia, Spain, Sweden, Switzerland, Taiwan and USA

77 The appropriate contacts for accounts receivable management were interviewed

77 Selection process Sample - Internet survey: companies were selected and contacted by use of an international internet panel. At the beginning of the interview, a screening for the

appropriate contact and for quota control was conducted n=5,399 persons were interviewed in total (approx. n=145-215 persons per country)

77 In each country, a quota was maintained according to three rough industry categories and two classes of company size.

77 As to Spain, the sample has been extended with the inclusion of the businesses with turnover under 1 million euro

77 Interview: Web-assisted personal interviews (WAPI) of approx. 12 minutes duration

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6.5 Sample overview

Country (n=5,399) n %

Belgium 168 3.1%

germany 210 3.9%

Italy 208 3.9%

the netherlands 212 3.9%

france 205 3.8%

spain 201 3.7%

sweden 202 3.7%

denmark 201 3.7%

great Britain 210 3.9%

Ireland 145 2.7%

Austria 205 3.8%

greece 203 3.8%

switzerland 192 3.6%

Poland 203 3.8%

Czech Republic 200 3.7%

hungary 209 3.9%

slovakia 201 3.7%

Australia 194 3.6%

China 215 4.0%

hong Kong 202 3.7%

taiwan 197 3.6%

singapore 207 3.8%

Indonesia 201 3.7%

Japan 207 3.8%

usA 210 3.9%

Canada 190 3.5%

mexico 201 3.7%

turnover (n=5,399) n %

micro enterprise 1,869 34.6%

small enterprise 1,692 31.3%

medium/large enterprise 1,111 20.6%

large enterprise 727 13.5%

economic sector (n=5,399) n %

manufacturing 1,250 23.2%

wholesale/Retail/distribution 1,335 24.7%

services 2,319 43.0%

financial services 495 9.2%

Where a single answer is possible, it may occur that the results are a percent more or less then a 100% when adding the results up. This is the consequence of rounding off the results. We have chosen not to adjust the results so the outcome would fit to a 100%, with the purpose of representing the individual results as exact as possible.

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Legal disclaimer

Survey results and content were based on data collected and tab-ulated by Heliview Research. This report is provided for informa-tion purposes only and is not intended as a recommendation as to particular transactions, investments or strategies in any way to any reader. Readers must make their own independent decisions, commercial or otherwise, regarding the information provided.

While we have made every attempt to ensure that the informa-tion contained in this report has been obtained from reliable sources, Atradius is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this report is provided ’as is’, with no guarantee of completeness, accuracy, timeliness or of the results obtained from its use, and without warranty of any kind, express or im-plied.

In no event will Atradius, its related partnerships or corporations, or the partners, agents or employees thereof, be liable to you or anyone else for any decision made or action taken in reliance on the information in this report or for any consequential, special or similar damages, even if advised of the possibility of such dam-ages.

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Your contact at Atradius

Motoaki Hoshino Country Manager

Atradius Credit Insurance N.V. Shiroyama Trust Tower 30F 4-3-1 Toranomon, Minato-ku Tokyo 105-6030

Phone: +81 3 5776 7307 E-Mail: [email protected] Web: www.atradius.jp

Atradius N.V. david Ricardostraat 1 · 1066 Js Amsterdam

P.O. Box 8982 · 1006 Jd Amsterdam the netherlands

Phone: +31 20 553 9111 fax: +31 20 553 2811

www.atradius.com

Atradius Payment Practices Barometer

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