USCMA businesses withdraw offers of trade credit
B2B credit sales drop by almost a quarter year-on-year
What a difference a year makes. This time last year the businesses we surveyed for our annual Payments Practices Barometer told us they anticipated fewer late payments. The majority even said they planned to increase the use of trade credit as part of their sales strategies for the coming year.
Here we are just 12 months later, and the picture is very different. Instead of businesses increasing the use of B2B credit, there has been a 23% drop in the use of trade credit in the region overall, with the biggest falls reported in Canada. This is a huge reduction in a facility that many businesses rely on as a form of short-term finance.
Why did so many businesses withdraw credit offers?
The evidence in this year’s Survey shows a sharp deterioration in payment practices. Payment behaviour took a turn for the worse, with a year-on-year rise in late payments of 13%. In fact, when we collated the evidence from all of the businesses we spoke to, it became clear that more than half of all sales were affected by payment delays. To protect their own liquidity, increasing numbers of businesses withdrew credit offers from their sales processes, or reduced payment terms to lessen risk.
This is an understandable response. If you demand cash up front before you release your goods or services, you won’t risk payment delays or defaults. However, this approach also carries other risks, including the risk of losing a customer to a competitor that is still offering trade credit. In fact, the drawbacks associated with withdrawing credit terms were recognised by the majority of the survey respondents, with 67% considering the advantages of taking out trade credit insurance to support their credit strategies and growth plans.
Have USCMA multinationals experienced late payments this year?
The USMCA Atradius Payments Practices Barometer Survey records the experience of a wide cross section of businesses across the region. It collates information from businesses ranging from micro enterprises and SMEs to multinational corporates and everything in between. While not focusing solely on the experience of multinationals, it’s worth remembering that the customer base of most multinationals will include businesses of all shapes and sizes.
It is concerning to see that more than half of all sales were paid late in the past year. As multinationals, we need to ask ourselves even if our own cash reserves are robust, can we say the same for our customers and suppliers? Could they be experiencing the stress of late payments? Perhaps your customers would benefit from trade credit to help them with their cash flow? At very least, the results of this Survey can be a useful starting point for valuable conversations that could help you keep trade flowing.
What are the key takeaways from this year’s Payment Practices Barometer Survey?
Detailed Payment Practices Barometer Survey results can be seen in the report. However, the key takeaways include:
- A 23% year-on-year drop in B2B sales on credit across the region
- Average payment terms contracted by seven days compared to last year
- Two-thirds of businesses collected overdue payments more than a month past the due date
- More than half of businesses spent more on collecting overdue invoices and strengthening credit control than last year
- 63% of businesses in the region used trade credit as a source of financing during 2022-2023
Regional Unit Director, Global North America, Vice President