Payment Practices Barometer Taiwan

Survey results for Taiwan

The greatest challenge to business profitability this year

Since 2011, Taiwan has been one of the weaker economic performers in Asia Pacific, with poor external demand for the island’s information and communication technology (ICT) products having an impact on the local economy. This has been due, chiefly, to lack of confidence in the global economic outlook, which has made businesses reluctant to invest in new capacity which has had a negative impact on the creation of capital. There has been some economic growth, but this has generally been the result of weak or negative expansion in imports of goods and services: net exports have served as the main driver of growth. In recent times, Taiwan’s administration has witnessed public protests regarding local elections in November, criticising the leadership administrations “obstructionist stance”. Despite this the Taiwanese economy has been enjoying a cyclical revival due to external demand and GDP is expected to expand by 2.7% a year on average for the next 5 or so years.

The slight shadow hanging over Taiwan, however, is that of China. Many fear that China’s treatment of Hong Kong could be duplicated in Taiwan and that the mainland will oppose certain reforms - there are concerns that relations with China could stall as the local population resists political talks. And although conflict with China is extremely unlikely, Taiwan could still be severely impacted by economic sanctions. If China were to undergo political liberalisation, links between the two sides could deepen considerably.

When Taiwanese respondents were asked about the main challenges to their business profitability this year, 43.5% answered that maintaining adequate cash flow was the most critical factor – the highest of all the nations surveyed in Asia Pacific, where the average was 35.6%. In addition, Taiwanese respondents placed falling demand for products and services in second place at 35.4%, third of all the nations surveyed. This indicates that Taiwanese businesses have some real concerns about getting paid. The nation has suffered some setbacks in recent years, particularly in the ICT sector, as China has provided a cheaper alternative to many companies seeking manufacturing in the region, luring business away from Taiwan.

On a more positive note, respondents from Taiwan and Japan were less impacted than others by bank lending restrictions, coming in at just 9.1% against an average of 14%, which suggests a favourable banking environment for businesses.

Past due receivables and uncollectables

Taiwanese respondents seemed to fare reasonably well overall in terms of past due and uncollectable receivables, with results positioning them more or less in the middle of the Asia Pacific respondents. Across the region, 36.2% of the total value of the invoices issued was unpaid at the due date, though for Taiwan this stood at 36.6%. At 90 days past due, 3.9% of Taiwanese respondents receivables remained unpaid, slightly better than the regional average of 4.4% and finally, 2.2% of overdue receivables were uncollectable - exactly the same as the regional average.

Days Sales Outstanding – DSO

Businesses across Asia Pacific recorded a DSO of 54 days overall, whereas Taiwan came in at 49 days. Although this is below average, which means that Taiwan’s businesses are encountering fewer issues than may generally be the case in the region, it is worth noting that, as the average payment term for the region is 34 days, this still means that they are having to wait an additional 15 days from invoice due date to collection on their credit sales. Also of note, by comparing the percentage of receivables that remained outstanding after 90 days past due, with that of the uncollectable receivables, we can conclude that on average, businesses in Taiwan lose 56.4% of the value of their receivables unpaid at 90 days. By country, this is the second highest, behind China at 64.1%.

70.85% of businesses in Asia Pacific felt generally that DSO became a threat to the sustainability of their business after thirty days, although for Taiwanese businesses this crept slightly above average, to 72.7%. Amongst other respondents across the region, Japanese respondents were least concerned about the impact of DSO after thirty days with 61.2% stating this to be the case, although China featured at the other end of the scale, at 78.9.    

Main reasons for late payment from B2B customers.

As with other nations surveyed, Taiwanese respondents cited insufficient availability of funds as a key reason for late payment from their domestic customers. However, Taiwan topped the tables amongst those surveyed for disputes over quality of goods, at 46.73%. The regional average for Asia Pacific was just 31.98% and for the Americas 21.35%, suggesting that this is particular to Taiwan, which has a heavily manufacturing based economy.

This also topped the results for late payment from international customers, with 41.67% noted this as a major issue. However, closely followed, at 41.07% by complexity of payment procedure, where Taiwan came in fourth behind China’s high score of 55.9% and an Asia Pacific average of 39.97%.   

Credit management policies used by respondents

72.45% of Taiwanese respondents had some form of risk mitigation in place in order to protect themselves from payment default, which sets this more or less in line with the Asia Pacific average of 72.14%.

In terms of the methods used to mitigate these risks, the most preferred option for Taiwan’s respondents was to request some form of secured payment, at 54.23%, whilst in second and third places were checking buyer creditworthiness at 52.82% and monitoring buyer credit risk, at 51.41%. Overall, Taiwan’s use of credit risk mitigation practices was near the average of the Asia Pacific region.

Taiwanese respondents’ preferred payment method is electronic transfer, at 82.13%, second only to Japan at 91.58%. Amongst all available methods of payment, electronic payment and PayPal were the two methods that Taiwanese respondents felt would increase the most in business to business transactions.