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Export & International

Late payment disrupts cashflow - Atradius payment practices barometer

By CreditMan Thursday, October 1, 2015

A new report from trade credit insurer Atradius analyses payment practices in the Americas – where default levels remain high.

The Atradius Payment Practices Barometer surveyed businesses in Brazil, Canada, Mexico and the United States and provides insight for exporters to those territories on the payment behaviours, trends and risks.

One in three businesses in the Americas reported that up to one-fifth of the value of their B2B receivables is more than 90 days overdue with the highest proportion being sales to foreign B2B customers. Overdue receivables are likely to become bad debts and if written off can cause severe disruptions to cash flow.

The Payment Practices Barometer also found that businesses in the Americas are less inclined to sell on credit to foreign customers with only 40% of foreign B2B sales on credit compared to 49% of domestic sales. Overseas businesses are given an average of 28 days to pay their invoices – four days less than the average term demanded by companies in Europe. Compared to its neighbours, the US places a greater emphasis on swift payment, with payment terms for B2B averaging just over 20 days from the invoice date. Brazil applies the most relaxed payment terms in the region at 34 days, with Mexico and Canada accepting 31 and 28 days respectively.

Payment default levels in the Americas remain high with 95% of businesses reporting late payments in the past year – equating to an average of close to 50% of the total value of B2B receivables experiencing default. On average, foreign customers to the Americas settle payments 37 days after the due date - significantly longer than the European average of 20 days. The most frequently cited reason for late payment is inefficiencies of the banking system, cited by 37% of businesses.

2.2% of the value of B2B receivables was written off by survey respondents as uncollectable. For 54.6% of respondents in the Americas, write offs were most often due to the customer being bankrupt or out of business. Other reasons were the failure of the collection attempts or that the customer could no longer be located (37% and 35.3% of respondents respectively). Worryingly, businesses in the Americas lose 35% of the value of their foreign B2B receivables that are not paid within 90 days of the due date. Foreign B2B write offs are reported to be mainly related to the construction, construction materials and consumer durables sectors.

Jason Curtis, Commercial Director at Atradius UK said: “The report highlights the need to understand the cash flow effect of dealing on credit, particularly in export markets. Suppliers cannot base their cash flow projections on home market payment terms as each market operates under different payment practices.

“While many suppliers understand the added risk of providing credit terms to export customers, and consequently credit insure those transactions, it is eye-opening that such a significant number of invoices are reported as unpaid past the due date. It is vital for suppliers to have comprehensive knowledge and regularly updated information on their customers’ financial strength and stability as well as a real understanding of overseas payment practices, terms and economic trends.”

The complete report highlighting the survey findings of the 2015 Atradius Payment Practices Barometer for the Americas can be found in the reports and advice section of the website. You can also follow @AtradiusUK on Twitter.