Kuala Lumpur, 14 January 2021 - The Trade Bureau platform of Experian Information Services (Malaysia) today announced the 2019 and 2020 Industry Debts Turned Cash (i-DTC) which measured payment data between 1Q 2019 to 4Q 2020.
i-DTC measures the average number of days companies take to pay their creditors after the invoice date. It 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. In this study, the seven selected industries of construction, hospitality and food/beverage, manufacturing, retail, services, transportation and storage, and wholesale were examined.
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.
Figure 1: Overall Monthly i-DTC (April 2020 – December 2020)
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.
This is 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.
Malaysia entered a recovery MCO phase starting 10 June 2020. Following the high of 88 days in June 2020, the payment trend eased to 74 days in November 2020, which is comparable to the pre COVID-19 period. Month-on-month, the improvement is one day, reflecting a relative stability in payment trends.
The latest December 2020 data shows a slight uptick of 2 days to 76 days overall, as Malaysia announced an extension of its recovery MCO to end March 2021. Industries on the whole, are still able to maintain its payment for now due largely to ongoing government measures. However, the increase of 2 days in December 2020 may be indicative of a start of a reversion to cash preservation strategies by businesses as some Malaysia localities impose stricter movement controls.
According to Dawn Lai, Chief Executive Officer of Experian Information Services (Malaysia), “There is a noticeable recovery tracked in 3Q and 4Q of 2020 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.
Figure 2: Monthly i-DTC by 7 industries (April 2020 – December 2020)
“Comparing data from July till December 2020, based on a month-on-month comparison, Lai noted that 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).”
According to Lai, the hospitality and food/beverage industries built on the recent signs of improvement in September and October 2020 through the Recovery Movement Control Order (RMCO) phase which spurred more business activity. Many construction projects also resumed operations in that period.
Since then, the increase in COVID-19 cases have resulted in an expanded Conditional MCO (CMCO) across many parts of Malaysia. While the government signalled that it expects the CMCO to affect 4Q20 GDP growth with consumer demand being impacted mainly in the retail, food and beverage, hospitality as well as the transportation sector, it is very encouraging to note that positive payment trends continued into 4Q. This is also despite the automatic moratorium having ceased in September.
This outcome can be attributed to the initiatives by Bank Negara Malaysia (BNM) and the financial industry to implement measures to address the COVID-19 impact and support economic recovery. However, with most states in Malaysia being back into CMCO, it could have an impact on the payment trends of businesses.
The latest December 2020 data shows that across most industries, payment trends have seen an increase, with 6 industries seeing an increase on a month-on-month basis with Manufacturing (up 5 days) and Wholesale (up 4 days) seeing the highest increases. This may be due to the CMCO impacting the two sectors, lengthening delivery timelines and experiencing delays in payment.
Moving into 2021, downside risks include the ongoing political uncertainty, the sharper resurgence of COVID-19 cases, vaccine deployment delays, latest announcements on the reinstatement of the MCO and CMCO in the respective states and the national state of emergency declared by the King, which may continue to impede the business outlook of Malaysian firms in making timely repayments.
Figure 3: Overall Quarterly i-DTC (1Q2019 – 1Q2020)
Analysing the pre-COVID-19 data, 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 1Q20, 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.
In light of unprecedented challenges of today’s economy, Lai advised businesses, especially MSMEs, to remain vigilant on payments to ensure long term sustainability and to adopt available online credit management tools.
Experian, the world’s leading global information services company, has a portfolio of products such as the CrediTrack and Trade Bureau services in Malaysia to help organisations protect themselves and their customers from credit risks.
To encourage businesses, in particular SMEs, to avail themselves to seamless online credit management tools, Experian continues to offer a one-month free trial of its CrediTrack. Lai said this initiative is timely in today’s volatile economy as it allows businesses to explore proven solutions to better manage their credit risks, monitor the creditworthiness of their customers and partners and receive daily alerts to enhance their recovery efforts.