The Hong Kong Stock Exchange is the largest IPO fund raised exchange in the world, the eighth largest exchange in the world and the fourth largest exchange in Asia by market capitalisation as at December 2015. According to the statistics of the Hong Kong Stock Exchange (HKEx), the number of public companies listed as at the end of 2017 is 2118. How do these local large companies practice credit management in Hong Kong?
Local large companies (most of them are listed) prefer to do business with other relatively large companies (i.e. non SMEs) with a long business history in Hong Kong. Because of this practice, background checks of new trading partners is rarely carried out. Some may demand the Business Registration of its trading partner as a formality, but most do not.
Few SMEs get credit when they buy from these local large companies unless there are specific condition that apply; for example, a SME wins a Government contract and a local large company wants to sell its non-unique product into the Government under this contract. In most cases, payment before delivery or Cash on Delivery (COD) is inevitable. By experience, local large companies often do not grant credit to SMEs for years until they build up a long history of trading experience.
On the contrary, when these local large companies buy from a SME, they immediately demand credit. When the payment is due, these local large companies often delay the payment. However, the default risk is very low, therefore their suppliers feel comfortable enough to accept the payment delay.
The credit function generally resides in the Finance Department with or without a separate team depending on the credit needs. Very often, the CFO is the Head of Credit and the credit team's task is just to execute the order-to-cash process.
There are roughly 200,000 companies with real operations in Hong Kong (the rest are holding companies). Among them, 50,000 of them involve with import & export businesses. With 98% of the Hong Kong businesses are SMEs, it is hard to avoid dealing with them. Therefore, you must establish an efficient mechanism to deal with them in your credit management process.
From the experience of Hong Kong based MNCs practice, using company credit reports is the most cost-effective way of overcoming this challenge.
This Credit Insight is an extract from the book Happy Customers Faster Cash, Hong Kong Edition and on sale at Amazon.
A guide to effective communication in financial Customer Relationship Management with a focus on compliance and credit management for Hong Kong companies. A chapter is dedicated to discussing various aspects of Hong Kong company credit reports.
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Alexander has over 25 years of experience in Business Information Management and Information Technology. Previously, he has held leadership positions in the world’s leading Business Information providers, including Managing Director of Thomson Reuters Asia, and General Manager of Dun & Bradstreet (D&B), Hong Kong and Taiwan. In addition, he personally managed Hong Kong's Commercial Credit Bureau while working with D&B, and the Consumer Credit Bureau through his directorship at TransUnion Limited.