Tuesday , May 28 2024

Việt Nam emerges as frontrunner in B2B sales on credit: report

Việt Nam emerges as a frontrunner in B2B sales on credit. — Photo Courtesy Atradius Vietnam

HCM CITY — Việt Nam has emerged as a frontrunner in B2B sales on credit, boasting a 67 per cent ratio, surpassing the 51 per cent average in Asia, reported a recently-revealed Atradius Payment Practices Barometer survey.

This surge, the survey said, reflects the adaptability of businesses in Việt Nam, particularly small and medium-sized enterprises (SMEs) in the agri-food and textile-clothing sectors, as companies strive to enhance their competitiveness in the market.

The key takeaways from the Atradius Payment Practices Barometer survey highlight a remarkable surge in B2B sales on credit among Vietnamese companies during the past 12 months, with an average of 67 per cent of all B2B trade, a 21 per cent year-on-year increase.

Payment terms were slightly lengthened to average 34 days from invoicing, which was mainly driven by large customers keen to retain a competitive edge. The surge in credit sales came with a risk of poorer payment practices with 89 per cent of respondents attributing late payments to liquidity shortages among B2B customers.

Despite the risks associated with increased trading on credit, these strategies clearly paid off for the polled companies who observed a downward trend in overdue invoices, now affecting only 32 per cent of all B2B sales, compared to 48 per cent in 2022.

Additionally, there was a significant reduction in bad debts, impacting only 1 per cent of all B2B invoiced sales, down from 6 per cent last year.

Another positive figure is that 60 per cent of companies reported an improved Days Sales Outstanding (DSO), averaging 57 days from invoicing, the report said.

The report also shows that Việt Nam companies have adopted a range of measures, including spending extra time and resources on chasing unpaid invoices and slowing down payments to suppliers.

Most companies undertook these measures within the framework of in-house retention and management of customer credit risk, involving setting aside funds to cover potential losses. The textile-clothing sector complemented this approach with the use of letters of credit.

Significantly, the surge in B2B sales on credit has sparked an increased interest in credit insurance as a risk mitigation strategy, with 70 per cent of companies polled in the agri-food sector exploring this avenue.

Hạnh Vũ, country manager at Atradius Vietnam, noted, “As the business landscape evolves, our survey findings underscore the strategic importance of trade credit in fostering sales growth and adapting to market dynamics. Việt Nam exhibits a high adaptability to economic fluctuations, and businesses are encouraged to explore innovative financial solutions to mitigate risks and ensure the sustainability of their operations in an increasingly competitive environment.

Despite the current challenges, businesses are still optimistic about the future. It is just that businesses need to well understand these factors and know how to respond strategically with a sound credit management policy to their advantage.”

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.

The 2023 Vietnam report was based on interviews with 211 companies across three industries of argi-food, chemicals and textile-clothing.

According to a report by the Vietnam General Department of Customs in December 2023, the overall import and export value for 2023 reached US$620 billion, marking an 8.2 per cent decline, equivalent to $56 billion, compared to 2022.

Specifically, exports amounted to around $323 billion, a 5.8 per cent decrease, equivalent to $20 billion, while imports were nearly $297 billion, a 10.7 per cent decline, equivalent to $36 billion.

In order to adapt to the changing business landscape, Vietnamese businesses have actively taken various measures to secure orders, one of which has been increasing sales on credit offerings to their B2B customers.

Looking ahead, a positive outlook prevails among businesses in Việt Nam, with 85 per cent anticipating an increase in demand for products and services, as recorded in the report, particularly in the agri-food and textile-clothing sectors.

While expressing optimism, companies also report concerns for the year ahead, including anxiety about a slowdown in global economic growth, volatile energy and commodity prices, and the impact of general inflationary pressures on production costs.

Atradius is a global provider of credit insurance, bond and surety, collections, and information services, with a strategic presence in over 50 countries and territories. — VNS

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