43.8% of Japanese respondents said that the biggest challenge to business profitability was falling demand for their products and services, the highest percentage of all Asia Pacific nations surveyed.
Survey results for Japan
The greatest challenge to business profitability this year
Japan has the world’s third-largest economy, with multinationals which are household names. But their ageing population has created a spiralling public debt, which has hampered competitiveness. In order to address this, policymakers have been focused of late on implementing initiatives contained in a new growth strategy, which includes cuts to the corporate-tax rate. GDP forecasts for Japan have been revised down to 1.4% for this year and 1.8% in 2015.
Despite this, manufacturing in Japan continues to flourish – they are the world’s largest manufacturer or electronics, leading the way globally in robotics and high tech precision goods such as optical instruments, robotics and hybrid technologies. They are also the world’s third largest automotive manufacturer.
The Japanese economic agenda, or “Abenomics”, as it has been named after Prime Minister Shinzo Abe, currently faces a tricky test, after the economy underwent a sharp contraction of 7.1% quarter on quarter on an annualised basis in April-June. The decline was expected, as the government implemented a higher consumption tax rate in April that saw consumers pull forward their spending. However, these changes to the tax system have made it difficult to assess the underlying strength of the economy. Encouragingly, private non-residential investment seems to be gaining momentum, which is essential, as the government’s best hope of lifting the rate of economic growth is to persuade cash-rich businesses to commit to expansion plans.
Against this backdrop, 43.8% of Japanese respondents to the survey stated that the biggest challenge to their business profitability this year was falling demand for their products and services, the highest percentage of all Asia Pacific nations surveyed. the average of the region was 32.3%. Maintaining adequate cash flow was the second and collection of outstanding debts the third most frequently mentioned challenges. Finally, as in Taiwan, only 9.1% of Japanese respondents rated bank lending restrictions as the biggest challenge to suggesting that the lending landscape remains comparatively favourable for businesses in these two countries. The Asia Pacific average was 14%.
Past due receivables and uncollectables
Respondents in Japan were impacted significantly less by past due receivables and uncollectable debt than any other nation surveyed, not just in Asia Pacific, but also in Europe and the Americas. Only 23.3% of overdue receivables of respondents in Japan were unpaid after 30 days overdue, versus an average for the region of 36.2%. At 90 days past due this dropped to just 1.5% and uncollectable debt was rated at less than 1%. The regional averages were 4.4% at 90 days overdue and 2.2% written off as uncollectable.
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 Japan lose 20% of their receivables unpaid at 90 days. By country, this is by far the lowest of the Asia Pacific nations surveyed. The second lowest was Singapore, some way higher at 42.1% and China was the highest at 64.1%.
Days Sales Outstanding – DSO
Across Asia Pacific, businesses recorded a DSO of 54 days on average, with Japan coming in at 43 days, one of the lowest after Australia at 31 days and Hong Kong at 37 days. Compared with the regional average, Japanese companies have to wait, on average, 11 additional days from the due date before payment is made. At the other end of the spectrum, Indonesian businesses have a DSO of 100 days, which means that they have a formidable 66 day wait before getting paid.
61.2% of Japanese businesses felt that DSO became a threat to the sustainability of their business when it esceeds thirty days. This was the lowest figure recorded in the survey, in direct contrast to China, where 78.9% of Chinese respondents felt at risk after thirty days. Japan, however, has been trading internationally, on credit, for many years and this result is likely to reflect their ease with credit based transactions.
Main reasons for late payment from B2B customers.
The main reason given by Japanese respondents for late domestic payments was incorrect information on the invoice, at 21.83% – the only country to select this as the main reason for non-payment amongst those surveyed. Indeed, Japanese respondents were the only ones in the Asia Pacific region for which “insufficient availability of funds” was not rated as the top reason for late payment delays.
In terms of late foreign payment, the “buyer using outstanding debts or invoices as a form of financing” came in top place for Japanese respondents, at 27.66%, although this was actually the second lowest score in the category, with only Indonesia lower, at 25.55%. The average for the region was 29.84%. Overwhelmingly, other nations surveyed were more impacted by complexity of payment, with most other countries placing this top, an average of 39.97%.
Credit management policies used by respondents
To protect themselves from the risks of trade credit, 72.14% of businesses in Asia Pacific undertake some form of risk management. Only 45.86% of those surveyed in Japan said that they did so. This was overwhelmingly the lowest figure amongst those recorded and may simply reflect a less permissive or flexible payment culture than is evident in other nations.
Of those methods used by Japanese respondents, the most popular at 53.75%, was to check a buyer’s creditworthiness – slightly higher than the region’s average at 51.93% - followed by reserving against bad debts, at 40%.
In terms of being paid, Japanese respondents overwhelmingly preferred electronic transfers of funds, at 91.98% some way ahead of other nations surveyed, and the regional average of 79.87%. By contrast, they came in lowest for all other methods of payment – cheques, for example, came in at 31.58% versus a 60.76% regional average, credit cards 7.37% versus a 38.99% regional average and PayPal at 2.63% versus an average of 22.92%. 42.86% expected to see an increase in the use of credit cards and 33.33% in the use of PayPal, showing that they are aligned with other nations surveyed in recognising the on-going increase in payment methods that can be used across various channels including online.