Payment Practices Barometer Indonesia

Survey results for Indonesia

The greatest challenge to business profitability this year

Indonesian GDP growth is predicted to slow to 5.3% this year, compared to 6.2% in 2012. This moderate slowdown to just over 5% assumes Indonesia avoids external financing pressures, which in turn depends on global funding conditions remaining sufficiently supportive, and on how well Indonesia’s policies facilitate continued near-term adjustment and support competitiveness and investment.

Fuel subsidies are still high and sensitive to both the value of the Rupiah and to global oil prices. Therefore, calls are being made for further reforms to the fuel subsidy system, to protect Indonesia better whilst freeing up spending for vital long-term investments in infrastructure and social programmes.

It is largely accepted that more efforts are needed to further diversify Indonesia’s exports and boost competitiveness in order to sustain quicker growth and development. Not only would this help stimulate exports and encourage foreign direct investment, but also help raise longer-term employment and economic growth. At the moment, Indonesia is at the mercy of large scale foreign holdings which could make it vulnerable to external economic events. Against this backdrop, Indonesian respondents were asked to name the greatest challenges to business profitability this year. Maintaining adequate cash flow came out top at 32.9%, with 30.9% citing falling demand for products and services – which could be attributable to China’s slow down, impacting much of the region. The third most frequently noted challenge facing Indonesian respondents was collection of outstanding invoices. At 22.7%, this response rate was the third highest of the countries surveyed in – the Asia Pacific region where the average was 18.1%. Bank lending restrictions were less of a problem and at 13.5% came in just below the 14% average of the region.

Past due receivables and uncollectables

Indonesian respondents said that 37.1% of overdue receivables were paid within 30 days, slightly above average for the region. At 90 days, only 2.9% of the receivables of Indonesian respondents remained unpaid compared to a high of 6.1% for India and a regional average of 4.4%. Things were less promising with regard to uncollectable debts, however with 2.6%, of overdue receivable proving uncollectable the Indonesian figure was higher than all but the 2.9% in India. The Asia Pacific regional average was 2.2%.

Also of note, by comparing the percentage of receivables that remained outstanding after 90 days past due, to that of the uncollectable receivables, we can conclude that on average, businesses in Indonesia lose 54.2% of the receivables which are unpaid at 90 days. By country, this is the third highest across the Asia Pacific region, behind China at 64.1% and Taiwan at 56.4%.

Days Sales Outstanding – DSO

Indonesian respondents demonstrated a fairly relaxed approach to DSO, when questioned about the impact on the sustainability of their businesses. 67% of respondents said that it DSO of over 30 days would affect their business – the second lowest figure of the countries surveyed, behind Japan. In terms of actual DSO, however, Indonesian businesses actually had the greatest reason for concern, with an average DSO of 100 days – far and above all other countries surveyed. The next nearest response was from India, though still some way off with a DSO of 65 days. When the average payment term for the region is taken into consideration – 34 days – that means that Indonesian businesses are suffering with cash flow constraints for a far longer period that their peers – not only in Asia Pacific, with a regional average of 54 days, but also Europe, where the average sits at 50 days and the Americas, at 48 days.

Main reasons for late payment from B2B customers.

At 50.75%, Indonesia’s respondents placed insufficient availability of funds at the top of their list of reasons for late domestic payments, the third highest response rate in the survey behind China at 67.12% and India at 54.77%, versus a regional average of 47.25%.

Perhaps more worrying though, were the next two reasons given by respondents. Buyers using outstanding debts and invoices for funding came in at 36.68%, whilst the formal insolvency of the buyer stood at 33.67%, the highest of all the countries surveyed. Overseas payments were delayed for different reasons, with complexity of payment topping the rating at 41.16%, whilst banking inefficiencies came in second, at 39.42% and formal insolvency of the buyer once again the third most frequent reason for payment defaults, with 33.58%.

The fact that insolvency is highlighted in both cases suggests that Indonesian businesses may be doing a poor job of determining the creditworthiness of their buyers before offering credit to them.

Credit management policies used by respondents

Further reflecting the insolvency issues faced by businesses in Indonesia, but unfortunately not stemming the issue, respondents from the nation scored higher than average for having policies in place to mitigate the risks of non-payment by their customers. 76.5% of Indonesian respondents had measures in place, the most popular of which was requesting secure forms of payment, at 60.93%, second only to China, at 65.17%. Also popular, in common with all other nations in the region, was checking buyer’s creditworthiness, at 56.29% - almost on a par with Singapore at 56.69% - and slightly behind top ranking China at 58.43%, reflecting their cautious approach to trading on credit. Indonesian businesses were also the least likely, by a significant margin, to self-insure, with just 5.96% going down this route versus a regional average of 35.16%.

In terms of how Indonesian respondents like to be paid, respondents anticipated the most significant growth in the use of PayPal and Credit Cards at 57.14% and 54.79% respectively. Cheques came in lowest at 31.86%, suggesting not only that online purchasing could be behind the payment trends in the nation but also showing consistency with Indonesia’s fondness for secure means of payment.