Overview of payment practices

By industry

Agri-food

Disputes over invoices cause many payment delays in the agri-food industry

Respondents from the Canadian agri-food industry reported that, on average, 40% of the total value of B2B invoices was overdue. 9% extended beyond 90 days overdue or more, and 4% was written off as uncollectable.

B2B customers delayed payments due to a number of reasons, and most often attributed this to disputed invoices or to inefficiencies of the banking system. Average DSO (days sales outstanding) in the industry is 34 days (in line with the country average).

More than a quarter of agri-food businesses withheld payment due to cash flow issues

To protect their cash flow and business profitability, a sizeable portion of respondents from the industry (27%) reported that they needed to delay payments to their own suppliers to avoid cash flow issues. The same percentage reported needing to increase the amount of time, resources and money spent to chase overdue invoices.

62% of agri-food industry respondents reported that they self-insure customer credit and 62% that they request guarantees of payment from B2B customers to whom they sell on credit.

56%

of respondents in the Canadian chemicals industry expect customer credit risks to worsen over the coming months

Atradius Payment Practices Barometer – June 2020

Although payment practices expected to worsen, most businesses predict growth

In the Canadian agri-food industry, three in five respondents believe that customer credit risk is more likely to deteriorate than to improve over the coming months, negatively impacting DSO, cash flow and the investment capacity of the business. To accelerate collection of payments, one quarter of industry respondents plan to offer discounts for early settlement of invoices.

53% of the survey respondents from the agri-food industry expressed the opinion that dependence on bank finance will increase over the coming months, due to increased late payments affecting cash flow in the industry. However, 45% of respondents said they expected banks to provide more credit to businesses during this period. 60% of respondents believed that industry sales and profits would improve over the next 12 months.

Uncollectable B2B receivables in Canada

(% of total value of B2B receivables)

Sample: companies interviewed (active in domestic and foreign markets) Source: Atradius Payment Practices Barometer – June 2020

Chemicals

Inefficiencies in banking system blamed for payment delays

Based on survey responses in the Canadian chemicals industry, an average of 35% of the total value of B2B invoices is overdue. 8% is more than 90 days overdue, and 3% is written off as uncollectable.

According to 40% of respondents, B2B customers delayed payments due to inefficiencies of the banking system. Industry DSO averages 43 days (well above the 34-day country average).

Late payments have caused job losses in the chemical sector

To reduce the risk of payment default and protect business profitability, a sizeable 30% of respondents from the sector reported that they had to increase the amount of time, resources and money dedicated to chasing overdue invoices. Nearly the same percentage delayed payments to their own suppliers, while 20% reported having to reduce workforce.

Most chemicals industry respondents (57%) said that they self-insure customer credit risk. 44% requested payment guarantees, including letters of credit, from their B2B customers. Within the frame of their trade credit policy, respondents said they often had to adjust payment terms to reflect the credit capacity of the customer.

Large proportion of chemicals industry foresee increase in poor payments behaviour

Five times as many respondents (35%) in the Canadian chemicals industry expect customer credit risk to deteriorate over the coming months than expect a reduction of credit risk (7%). Most respondents expected this to have a negative impact on their DSO, resulting in a worsening of their liquidity position and of the investment capacity of their business. Most respondents from the industry said they did not plan to change the mix of credit management tools and techniques they were using to strengthen credit management over the coming months.

The only exception was the more frequent adjustment of payments terms to reflect the credit capacity of the customer. Over half of the survey’s respondents (56%) believed that late payments in the chemicals industry would increase over the coming months, leading to greater dependence on bank finance as businesses sought loans to support their cash flow. However, 49% of industry respondents expected banks to provide more credit to businesses during this period. Over half (54%) expressed the opinion that industry sales and profits will improve over the next 12 months.

68%

of respondents in the Canadian steel/metals sector offered their B2B customers discounts for early payment of invoices over the past months

Atradius Payment Practices Barometer – June 2020

Steel / metals

Steel / metals industry among most efficient in Canada at collecting invoices

Average DSO in the Canadian steel/metals industry is 23 days. This is well below the 34-day country average, and singles out the industry as one of the best in Canada in terms of collection efficiency. According to survey responses in the steel/metals industry, an average of 45% of the total value of B2B invoices was overdue, 7% was more than 90 days overdue and 2% was written off as uncollectable.

Respondents reported a wide range of reasons for payment delays from their B2B customers. These ranged from inefficiencies of the customers’ internal payment processes to liquidity constraints. Disputed invoices were cited as the most common reason for late payments in the industry.

Cash is King in Canada’s steel / metals industry

A remarkable 71% of respondents from the Canadian steel/metals industry reported a preference for selling on a cash basis rather than on credit terms. Where sales were made on credit, 33% of respondents reported the need to strengthen their internal credit control procedures in order to protect cash flow and the profitability of the business from customer credit risk. Within the frame of their trade credit policy, 68% reported that they most often needed to adjust B2B credit terms to reflect the credit capacity of their customers.

The same percentage of respondents (68%) offered discounts for early payment of invoices. Two other techniques frequently practised by businesses in our survey include the active avoidance of credit risk concentrations and the use of dunning letters (payment reminders) to speed up debt collection. Both approaches were reported by 65% of survey respondents.

Confidence that payments will be made remains high

72% of respondents in the steel/metals industry in Canada said that they did not expect the default risk associated with customer credit to deteriorate over the coming months. However, those respondents that did expect to see a worsening of B2B customers’ payment practices predicted this would have an adverse impact on their DSO, leading to cash flow issues and potential deterioration of the investment capacity of the business.

To strengthen their credit management processes over the coming year, many respondents said they planned to request letters of credit and to outsource debt collection to specialist agencies more frequently. Half of the sector’s respondents expressed concern over a possible increase in late payments in the industry over the coming months, potentially leading to an increased dependence on bank finance. However, 64% of industry respondents said that they expected banks to provide more credit to businesses over the same period. 57% expressed the opinion that the industry sales and profits will improve over the next 12 months.

54%

of respondents in the Canadian services industry reported they self-insured customer credit risk

Atradius Payment Practices Barometer – June 2020

Services

Many businesses in the services sector delay payment as a form of financing

Survey responses from the services industry in Canada show an average of 38% of the total value of B2B invoices is overdue. 6% extends past 90 days overdue, and 2% is written off as uncollectable.

According to 40% of respondents, B2B customers delay payments due to disputed invoices, while 38% claim that late payments are due to B2B customers using outstanding invoices as a form of financing to alleviate pressure on cash flow. Industry DSO averages 40 days (well above the 34-day country average).

Service industry businesses frequently use letters of credit to protect cash flow

Due to late payments from their B2B customers, 24% of Canadian respondents from the services industry reported that they needed to spend more time, resources and money to chase unpaid invoices. To protect cash flow and business profitability from the risk of payment default, the majority of respondents from the industry (63%) reported that they requested letters of credit from B2B customers.

54% self-insured customer credit risk. A similar percentage frequently reviewed and revised company credit policies, adjusting payment terms to reflect the credit quality of the customer, while also applying credit management techniques aimed at avoiding credit risk concentrations in their sales ledgers.

Most service industry businesses expect payment behaviour to remain unchanged

The majority of survey respondents from Canada’s services industry (65%) said they expected the risk of B2B customer payment default to remain at current levels over the next few months. 22% of respondents said they expected to see an increase over the same period and 13% expected to see a risk reduction. To address deterioration of B2B payment practices, many respondents from the Canadian services industry said they planned to request letters of credit more often or increase dunning activities (payment reminders) to stimulate faster collection of invoices.

Looking ahead, two in five respondents said they felt late payments would lead to an increased dependence on bank finance over the coming months, as businesses sought to manage the gaps in their cash flow. 39% of respondents believed that banks would be more open to provide finance to businesses in the industry. 45% of respondents believed industry sales and profits would improve over the next 12 months.

Construction materials

Construction materials industry keeps DSO low by minimising long overdue invoices

According to responses to the Atradius Payment Practices Barometer survey an average of 43% of the total value of B2B invoices in the Canadian construction materials industry was overdue. 15% extended past 90 days overdue, and 4% was written off as uncollectable.

Nearly half of the respondents reported that B2B customers most often delayed payments due to disputed invoices, while 36% claimed that late payments most often resulted from the customer using outstanding invoices as a form of financing. Despite this, DSO in the Canadian construction materials industry averages only 23 days. This is well below the 34-day country average, signalling better success in collecting invoices (particularly high value invoices) than their peers in other industries surveyed.

Nearly half of the construction materials companies surveyed self-insure

49% of the respondents from the Canadian construction materials industry said that they self-insured, while 40% requested guarantees of payment from their B2B credit customers. As part of their trade credit policies, many respondents reported performing dunning activities (payment reminders) aimed at accelerating the collection of outstanding invoices.

To minimise customer credit risk and protect business profitability, one quarter of respondents from the industry reported that they had to devote more time, resources and money to chase overdue invoices and strengthen their credit control procedures.

Construction materials industry predicts reduction in total value of unpaid bills

In contrast to what we observed in other industries surveyed, most Canadian construction materials industry respondents (55%) expected the total amount of unpaid invoices to shrink over the coming months. Similarly, they expected to see an improvement in cash flow leading to a reduction in dependence on bank finance. That said, 35% of respondents said they expected to see an increase in the total amount of unpaid invoices. 44% believed banks would provide more credit to businesses over the coming year. However, despite expecting an overall decrease in debt, twice as many respondents (31%) in the Canadian construction materials industry believed customer credit risk would get worse, than those that expected it to improve (14%) over the coming months.

Most of the respondents from the industry expected the proportion of long overdue invoices in their sales ledgers to grow, negatively affecting DSO. Except for adjusting payment terms more frequently to reflect the credit capacity of the customer, most respondents from the industry (56%) did not plan to change the mix of credit management tools and techniques they are currently using to mitigate customer credit risk. A similar 56% of industry respondents expected improvement in industry sales and profits over the next 12 months.

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