SCC Holdings Berhad Annual Report 2018

SCC Holdings Berhad | Annual Report 2018 .81 NOTES TO THE FINANCIAL STATEMENTS 31 DECEMBER 2018 (CONT’D) 30. Financial Instruments (cont’d) (b) Financial risk management The Group has exposure to the following risks from its financial instruments: • Credit risk • Liquidity risk • Market risks (i) Credit risk Credit risk is the risk of a financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group’s exposure to credit risk arises principally from the individual characteristics of each customer, loans and advances to subsidiary companies and financial guarantee given to banks for credit facilities granted to subsidiary companies. There are no significant changes as compared to prior periods. Trade receivables Risk management objectives, policies and processes for managing the risk Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis via Group’s management reporting procedures and action will be taken for long overdue debts. Majority of the trade receivables are from trading activities. At each reporting date, Group assesses whether any of the trade receivables are credit impaired. The gross amounts of credit impaired trade receivables are written off (either partially or full) when there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. Nevertheless, trade receivables that are written off could still be subject to enforcement activities. There are no significant changes as compared to previous financial year. Exposure to credit risk, credit quality and collateral As at the end of the reporting period, the maximum exposure to credit risk arising from trade receivables are represented by the carrying amounts in the statement of financial position. Concentration of credit risk As at the end of the financial year, the Group has 2 (2017: 1) major customers and accounted for approximately 26% (2017: 10%) of the trade receivables outstanding. Recognition and measurement of impairment loss In managing credit risk of trade receivables, the Group manages its debtors and takes appropriate actions (including but not limited to legal actions) to recover long overdue balances. Generally, trade receivables will pay within credit terms. The Group’s debt recovery process is that when invoices which are exceeded credit terms, the Company will start to initiate a structured debt recovery process which is monitored by sales team. The Group uses an allowance matrix to measure ECLs for trade receivables. Consistent with the debt recovery process, invoices which are exceeded credit terms will be considered as credit impaired. Loss rates are based on actual credit loss experience over the past three years. Nevertheless, the Group believes that the forward-looking factors are immaterial for the purpose of calculation impairment for the financial year.