Experian i-DTC: Trade Payments Show Moderate Improvements in 1Q 2021 but Brief Respite at Risk

Experian Information Services Malaysia released its latest ‘Industry Debts Turned Cash’ (i-DTC) Indicators on payment trends for 1Q 2021

KUALA LUMPUR, 27 MAY 2021 - Experian Information Services (Malaysia) today announced its 1Q 2021 Industry Debts Turned Cash (i-DTC) which measured payment data from January 2021 to March 2021, during the period of Malaysia’s MCO 2.0.

i-DTC evaluates data from Experian’s Trade Bureau platform based on an average number of days from the date of invoice until payments are made by companies to their creditors. The platform tracks more than 500,000 payment records, cutting across a spectrum of industries, bringing into focus the speed of creditor payments. In this analysis, seven key industries were examined: construction, hospitality and food/beverage, manufacturing, retail, services, transportation and storage, and wholesale.

Businesses in Malaysia continue to be buffeted by the effects of the Movement Control Order (MCO) to flatten the COVID-19 curve but observed to be better positioned to service trade payments as compared to the first MCO implemented in March 2020. This is reflected in the i-DTC data for the first three months of 2021, where the average repayment across all seven sectors took 71 days; a better performance by comparison to the April 2020 to December 2020 period when COVID-19 first hit.

The improvement in trade payment averaging 71 days for 1Q 2021 may be attributed to the government’s efforts to limit the closure of businesses under MCO 2.0 and to elevated holiday spending during the festive season in the first quarter. Furthermore, more businesses appear to have adopted some level of digitalisation which have put in place processes to better manage the possibility of a returning MCO. This contrasts with MCO 1.0 where the effects of the lockdown adversely affected the economy with trade payments reaching a peak of 88 days in June 2020.

The impact of MCO 2.0 varies across industries. The Transportation & Storage industry performed the best, with an improvement of 14 days from 77 days in December 2020 to 63 days in March 2021 (Figure 2). This is likely attributed to the standard operating procedure (SOP) under MCO 2.0, where businesses were allowed to resume with limited disruption, in addition to the sector’s growing demand. The parcel delivery segment (last-mile delivery) could be one of the main contributors to the improvement as the e-commerce industry has grown rapidly in the past one year.

According to Dawn Lai, Chief Executive Officer of Experian Information Services (Malaysia), “Our economy remains uncertain and evolving as we enter MCO 3.0 and with tighter restrictions. This translates to businesses still facing uncertain near-term risk of disruptions. Monitoring of cash flow continues to be key in companies being able to ride through the ebb and flow of the uneven economic recovery experienced by Malaysian companies. Our observation is that cash preservation will continue to be the focus for smaller Malaysian enterprises where they have less ability to demand preferential credit terms from their clients.”

The Construction sector has seen broad improvements in its i-DTC performance with an average of 89 days for 1Q 2021, an improvement over the height of the first MCO where the sector was at a virtual standstill and peaked at 104 days in July 2020. Construction activity has gradually resumed but  companies had to make additional investments into safety measures to adhere to SOPs around MCOs. Increased optimism in the sector may be realised with planned investments in infrastructure, healthcare, and renewable energy projects. One such injection of investment is the potential implementation of a budgeted RM7.3 billion by the Malaysian government through the Works Ministry (KKR) for public infrastructure construction and maintenance projects in 2021, but this remains at risk of delays due to rising COVID-19 infections in Malaysia.

In the Retail sector, i-DTC repayments have averaged 73 days in the first quarter of 2021, which represents an increase of 11 days quarter-on-quarter (62 days in 4Q 2020). The sector remains highly at risk with the uneven economic recovery and due to changing safety measures which directly impact their ability to trade. MCO 2.0 is reported to have affected 90% of retail organisations as shared by the Bumiputera Retailers Organisation. Consumers have also likely reduced their disposable income spending, given job uncertainties. Malaysians may also have shifted their retail buying behaviour with more consumers turning to e-commerce as a retail purchasing channel. The sector has recorded a two-decade low performance with a contraction of 16.3% in 2020, where foot traffic fell to almost zero as people had to stay at home.

Similarly, the Services sector is also facing intense headwinds as services like tourism, employment agencies, rental & leasing services, advertising, and media have all faced revenue reductions. The i-DTC numbers for the services sector are averaging 87 days for 1Q 2021. However, both February and March 2021 recorded 91 days, respectively - the highest since July 2020 (85 days). Among all the industries, the services sector may require the most attention and effort to recover. Governmental measures could help the sector take on these headwinds and initiatives like ‘PEMERKASA’ will be a vital lifeline to this sector.

While Malaysia has entered MCO 3.0, businesses have also learned and adapted to the new ways of managing their operations. They are now better positioned to deal with the social and economic conditions that MCO 3.0 might bring. While the recent closure of popular malls listed under HIDE (Hotspot Identification for Dynamic Engagement) is necessary, it will present new sets of challenges to businesses and it may affect payment collection days for 2Q 2021. Businesses need to stay resilient and risk mitigation remains one of the key factors in recovering the economy.

“With the uneven and volatile nature of this current economic environment, companies need to lean into adopting more business intelligence tools to manage credit risk on an ongoing and agile basis,” advised Lai. “Areas like performance, delinquencies, affordability and exposure can quickly change with inherent macroeconomic risks. Ongoing monitoring of business partners and access to new analysis from non-traditional data sources may provide better insight into changing behavioural trends and inform effective strategies and responses to better adapt, survive and thrive during these uncertain times.

“In particular, it is critical for SMEs to transform quickly and embrace digital technologies to stay relevant and operate in a movement restricted environment. Continuing to onboard new customers through digital authentication tools such as eKYC ensures that they can grow new businesses remotely and with confidence.”

 

 (ENDS)

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