B2B Payment Practices in USMCA

Close to half of the region’s invoices were paid late last year, but USMCA now expects improvement

Despite rising rates of interest and inflation, region is optimistic about improvement in payment practices

The results of this year’s annual Atradius Payment Practices Barometer Survey of businesses throughout the US, Mexico and Canada (USMCA) show that many of the region’s businesses grappled with late customer payments over the previous 12 months. Although the use of trade credit held steady year-on-year, with just over half of the region’s businesses offering B2B trade credit, a large proportion of the businesses surveyed reported late payments. Close to one in five in Canada (19%), 15% in Mexico and 12% in the USA also told us they had to write off invoices due to customer insolvency.

Businesses anticipate improvement in payment practices

Despite the challenges of the previous few months and current rising interest rates and inflation, the majority of the region’s businesses expressed optimism about the future payment practices of their customers. 67% of businesses polled in Canada told us they expect the payment practices of their B2B customers will improve going forward, particularly in the chemicals industry. This confidence was echoed by 86% of businesses polled in Mexico. In the USA, 78% of the survey’s respondents expect an improvement in payment practices.

Much of the confidence was grounded in commitments to retain or expand strong credit management practices. A significant majority of the businesses using trade credit insurance (more than 90%) told us they intend to continue to use it over the coming months.

Mexico experiences most payment delays of region

Mexico reported the greatest proportion of late payments and write offs over the past year (with 50% of the total value of B2B invoices overdue and 7% written off). This was followed by the USA with 47% late and 6% written off. Canada fared the best during the period surveyed with 43% late and 5% written off. Of greatest concern is the level of the write offs, which potentially threaten a significant proportion of profit margins.

 Mexico was the only country in the region to report a year-on-year increase in payment delays (23 days on average up from 18). However, this increase only brought it in line with the average delays reported by the USA (also 23 days) and Canada (slightly more at 25 days this year). 

Businesses to continue offering credit with tightened credit strategies

The majority of the survey’s respondents reported planning to increase the use of credit as part of their sales strategies for next year, with fewer than 10% across the whole region planning to decrease the use of credit. Almost every business currently using credit insurance in USMCA is planning to continue to use it next year, either alone or in combination with other tools (USA 94%, Mexico 94% and Canada 98%).

 Among the businesses planning to offer customer credit, the majority reported doing so in order to win new customers and to encourage repeat business with established customers. The need to give customers more time to pay was additionally cited by about a quarter of the businesses surveyed across the region.

Mexico and USA offer longest payment terms

Mexico and the USA reported the longest average payment terms (52 days and 42 days respectively, compared to Canada’s 36 days). However, this may be a reflection of the industries surveyed, which included agri-food businesses in Mexico and the USA, but not Canada.

Fewer than 10% of businesses across the region opted to shorten their payment terms over the past 12 months, which may also be a part-reflection of the significant number of businesses that told us they often gave their customers additional time to pay their bills.

Close to half of businesses surveyed across the region adopted a company standard for payment terms, with the vast majority additionally listing a range of criteria for their decisions on terms. These include the availability and cost of capital needed to finance the time gap between the credit sales and the invoice payment, potential profit margins and the terms that sales teams had offered in order to win the sale. About a third of those surveyed told us the availability of credit insurance cover influenced their decisions on payment terms.

Deteriorating DSO concerns businesses throughout USMCA

Many businesses across the region expect a deterioration in DSO over the next 12 months, as rising interest rates and increasing inflation continue to impact trade. This was recorded as the leading concern among businesses in the US, Mexico and Canada, along with problems in keeping pace with rising demand for products and services, and concerns over further potential disruptions caused by the pandemic.

Download the Payment Practices Barometer: USMCA paper here