Business payments to creditors recovered in 3Q and 4Q20, says Experian

KUALA LUMPUR (Jan 14): The average number of days Malaysian companies take to pay their creditors recovered in the third and fourth quarters of 2020 (3Q and 4Q20), according to Experian Information Services Malaysia.

In its ‘Industry Debts Turned Cash’ Indicators (i-DTC) on payment trends in 2019 and 2020 released today, Experian said in this study, seven selected industries of construction, hospitality and food/beverage, manufacturing, retail, services, transportation and storage, and wholesale were examined.

It said i-DTC measures the average number of days companies take to pay their creditors after the invoice date.

The firm the study is based on more than 500,000 payment records on business corporations and SMEs across a spectrum of industries facilitating a clearer picture of how fast companies are paying their creditors.

Experian said while businesses continue to be impacted by the effects of Covid-19, the payment trend in 2020 has shown signs of recovery from the worst of the Covid-19 effects.

It said that overall, the average i-DTC for the seven industries increased by 10 days from 78 days in April 2020 to a high of 88 days in June 2020.

It explained that this was likely due to companies attempting to preserve cash as a result of the unprecedented decline in business activity during the period of the movement control order (MCO).

Operational constraints, in particular, among micro, small, and medium enterprises (MSMEs) who were not equipped or ready with a Work From Home structure to facilitate ‘business as usual’, would also have added to payment delays, it said.

Experian Malaysia CEO Dawn Lai said there was a noticeable recovery tracked in 3Q and 4Q20 in the wider Malaysian economy.

“This positive trend is likely attributed to the fact that most of the Malaysian economy re-opened post the MCO and with business activity resuming to some normalcy since June 2020.

“This, coupled with the government’s ongoing implementation of the Prihatin and Penjana economic stimulus packages, have contributed to enhanced business activity which has helped boost market confidence,” she said.

Lai said comparing data from July till December 2020, based on a month-on-month comparison, all seven industries saw an improvement in i-DTC days with three industries registering the largest improvements – hospitality and food/beverage industry (18 days), retail (16 days) and construction industry (15 days).”

She said the hospitality and food/beverage industries built on the recent signs of improvement in September and October 2020 through the recovery MCO (RMCO) phase which spurred more business activity.

Many construction projects also resumed operations in that period, she added.

Lai said a quarterly review of the average i-DTC 2019 across the same industries indicated a steady average of payment around 73 days in 2Q, 3Q and 4Q and even into 1Q21, a decline from the average of 75 days in 1Q19.

“Then, with the impact from the pandemic, payment trends saw an increase in payment periods right till June 2020 and then improved thereafter.

“Nonetheless, there remains downside risks in the economy due to Covid-19. Some of the risks include a further resurgence of Covid-19 cases and potential delays in vaccine deployment. Should this materialise, businesses may revert back to a cash preservation strategy to ensure their survival,” she cautioned.

Source: TheEdgeMarkets