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Late payments on the rise when trading in the Americas: new survey

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Late payments on the rise when trading in the Americas: new survey  article image

Risk management specialist Atradius has conducted its annual review of international corporate payment practices, surveying companies from Brazil, Canada, Mexico, and the United States.

The survey found that selling on credit had declined overall and that respondents were more likely to sell on credit terms to domestic rather than foreign customers. 

Respondents in Brazil remain the most inclined to offer credit terms (42.8 per cent of B2B sales on credit terms), while respondents in the US were least likely to extend credit (39.8 per cent of B2B sales on credit terms).

Domestic credit terms are granted mainly to facilitate sales and local expansion, to nurture relationships and attract new customers, and because credit sales are common practice.

Survey respondents also believed that selling on credit domestically builds trust and is easy and safe. Survey respondents said they chose to trade on credit with foreign B2B customers to enable international sales, reward loyalty, and attract new customers.

Respondents don’t extend credit terms when the buyer’s payment behaviour is poor, when they have insufficient information about their customer’s business or payment performance, or when currency, economic or political risk is high in the customers country they’re trading with. 

Importance of due diligence

This shows a strong awareness of the importance of due diligence before trusting customers to purchase on credit. Working with a trade credit insurance provider can help businesses get the information they need to determine whether a customer is creditworthy, which can help businesses expand with confidence. 

This is important because trading on credit is often the only way to secure new business, particularly when it comes to international sales.

Despite conducting due diligence, 90.3 per cent of survey respondents reported late payments by their B2B customers. The proportion of overdue B2B invoices increased from an average of 48.8 per cent in 2017 to 50 per cent this year. 

This year, the average days sales outstanding (DSO) figure is 37 days, two days longer than last year. 

This is despite payment terms increasing by an average of four days to 31 days for domestic customers, while foreign B2B customers are given 29 days, up from 27 days in 2017. These extended terms have led to a decrease in payment delays everywhere but Mexico, which reported an increase in payment delays. 

Complex payment procedures

The main reasons given for payment delays domestically were insufficient availability of funds (49.6 per cent of respondents) and the buyer using outstanding invoices as a form of financing (24.7 per cent).

Complexity of the payment procedure was the main reason for payment delays by foreign B2B customers (32.6 per cent).

Businesses were impacted by payment delays: 21.5 per cent of respondents reported that they needed to take special measures to correct cash flow; 20.3 per cent said that they needed to postpone payments to suppliers; and 17.5 per cent have lost revenue.

Risk sectors

Following decreases in the US and Mexico, the average proportion of uncollectable B2B receivables in the Americas declined from 2.1 per cent in 2017 to 1.8 per cent this year. Uncollectable receivables were experienced most often with buyers from the consumer durables, business services, services, and construction sectors.

B2B receivables were reported to be uncollectable mainly because the customer went bankrupt or out of business. Secondary reasons were an inability to locate the customer, failure of collection attempts, and the old age of the debt.

When this happens, businesses are at significant risk of not being able to meet their own payment obligations and the knock-on effects can lead to insolvency.

Businesses can avoid being unable to collect debts by doing more thorough due diligence with the help of a trade credit insurance provider, setting more stringent payment terms and following up late payments early.

In the event of non-payment, businesses can then claim against their trade credit insurance to make up the shortfall.

Mark Hoppe is ANZ managing director, Atradius, a world leader in trade credit insurance

www.atradius.com.au

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