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More Indian exporters avoided trade on an open account basis — where payments are deferred — in 2009-10, reflecting a drop in their risk appetite.
According to a survey by global credit insurance and information firm Coface, companies using open account as main payment mode have almost halved to 38 per cent in 2009-10, over 64 per cent in 2008-09. Firms have preferred post-dated cheques and advance payments.
The study in its third year was conducted in October-November 2010 and has responses from around 5,000 companies operating in India.
However, the recovery of the global markets, and especially the US, is poised to bring a resurgence in this mode of payment in 2011.
“With buyers in the US facing losses last year and a few going bankrupt, exporters in India had become unsure of their ability to pay back. But, with foreign buyers preferring open account, it is picking up again as domestic manufacturers compete with sellers from countries like China,” said Mr Samuel Jesuratnam, Country Manager, Coface India Credit Management Services.
Crisis till 2011
The survey also finds that sole proprietorship and partnerships were most affected by the financial crisis, while publicly-held, Government-owned and joint ventures had it smoother. Around 19 per cent of the companies surveyed said that markets are yet to stabilise and the global crisis would only end by 2011.
“We've seen a drop in premiums collected last year, since that is related to the turnover of trade, which itself has fallen. Small enterprises have been most affected in the slowdown, with textiles, IT and the gems and jewellery sectors facing the biggest brunt,” he said.
The French company has business exposure of around €3.7 billion in India, of which 85 per cent comes from foreign companies exporting to India and trading between domestic companies. The rest is from Indian exporters seeking credit insurance and information on foreign buyers. Coface also provides debt recovery.
Mr Jesuratnam said that the credit insurance industry has been at a standstill since October last year because of the IRDA asking companies to stop sale of new products. The Rs 120-crore (2010) industry is estimated to have lost around Rs 20 crore of business in the last six months.
“We have filed our new product with the required changes and expect a reply within a month. We're growing 20 per cent in Asia, but still 80 per cent of our revenues are from Europe. We see a lot of potential in India,” he said.
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