RAM CI: Companies taking longer to repay debts in 2Q

RAM CI: Companies taking longer to repay debts in 2Q
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KUALA LUMPUR (Aug 14): RAM Credit Information Sdn Bhd (RAM CI) reported that the average debt-repayment trend across industries showed a slow creeping up to 70 days in the second quarter of 2017 (2Q17), compared from 66 days in 1Q17.

This was the conclusion from its second industry debts turned cash indicators (i-DTC), which measures the avreage number of days companies in various industries — it measured 12 — take to pay their creditors after the invoice date.
 
While the majority of companies still grant credit terms in the range of 30 days, RAM CI said the Construction, Retail and Wholesale industries requires longer credit terms of 60 days to 120 days.
 
At the same time, RAM CI said its i-DTC indicators have revealed that companies in the services-related industry such as the information, communication & technology (ICT), financial services and real estate sectors experienced a decline trend in payment speeds over the same period.
 
“For the real estate industry that includes property companies and real estate firms, it is probably due to a slowdown in sales over the last two years which contributed to them being stretched in their cash flow,” RAM CI said in a statement released today.
 
“As for ICT and Financial Services industries covering generally larger corporations such as banking & financial institutions, telecommunication and IT companies, it could possibly be due to a lengthening of payment processes,” the credit reporting agency added.
 
On the other hand, RAM CI said companies in the Agriculture, Construction and Manufacturing, have a notably improved trend in terms of the speed in making payments over the last few quarters.
 
This, it said, is consistent with the broadly positive business prospects for these three sectors.
 
In addition, RAM CI added that the hospitality & food and beverage (F&B), together with the Education industry — the latest addition in the i-DTC — seems to be prompt paymasters with an average of 30-days payment for Hospitality & F&B, and slightly over 30 days for Education.

“For creditors who extend credit to companies in these few industries, it is important to continue to watch for the i-DTC trend and work out an appropriate payment process with their debtors to ensure they get paid promptly,” RAM CI’s Chief Executive Officer Dawn Lai said in the same statement.
 
“The RAMCI i-DTC data also indicated that the defaulted payments for total business corporations is on slower pace of increase with an average of 0.38% increase per month, representing a compounded growth rate of 4.56% over the 12-months period, compared with previous 12-months compounded growth rate of 7.41%,” Lai continued.
 
This, RAM CI said, indicated a positive sign that the Malaysian economy condition is stabilising, consistent with the upward revision of gross domestic product growth and the broadly positive business sentiment of latest release of RAM Business Confidence Index, a quarterly business survey jointly conducted by RAM Holdings and RAM CI on over 3,000 corporates and small and medium enterprises (SMEs).
 
While managing cash flow is important in ensuring sustainability of their businesses, Lai said SMEs need to be more vigilant in their payment collections, taking into consideration the average i-DTC for their debtors' industries.
 
“Companies should make use of credit tools available in the market such as RAM CI's Trade Bureau service to continue to track their customers' payment behaviour. Take preemptive actions in payment follow up with early warning alerts to detect any first sign of deterioration of credibility on their customers,” she added.
 
“It is our main objective to continue to make the effort to share detailed trade payment information such as this to assist companies better manage their cash flow and limit their credit risk,” Lai said.
 
The RAM CI i-DTC indicators are based on more than 450,000 payment records on business corporations and SMEs measured between 3Q16 to 2Q17, and segregated by industry to allow a clearer picture of how fast companies in each industry pay their creditors.  
 
The data was derived from RAM CI’s Trade Bureau, an independent and neutral sharing platform established since 2004 with over 1,000 data contributors nationwide.