Survey findings for Canada
Key survey results for Canada
Based on the results of the Atradius Payment Practices Barometer survey in Canada, there was an increase in the total value of B2B sales made on credit compared to one year ago (63%, up from 57% last year). In these challenging economic times, the increased use of B2B trade credit in Canada probably reflects higher pressure on businesses to sell and grow market share to offset the squeeze on profits, as well as the challenge to protect sales against competition. Moreover, as the credit-based B2B sales were reportedly made chiefly on the domestic rather than export markets, it is reasonable to assume that many businesses in Canada resorted to domestic supplier credit to fill a gap in short-term trade financing during these times of strained cash flow.
The survey respondents reported a shift towards more stringent payment terms for B2B customers. This now averages 26 days from invoicing, compared to 37 days one year ago. The shorter payment terms appear to be most often set in accordance with company standards, internal business practices and, in many cases, competition. This is likely the logical reaction to the marked worsening of the insolvency environment in Canada, as evidenced by the survey results highlighting a staggering 86% year-over-year increase in late payments in the country. Overdue invoices now represent 39% of the total value of respondents B2B sales, up from 21% last year.
Late payments most often resulted from disputed invoices. However, in many cases, they were attributable to the liquidity constraints of B2B customers. Long overdue invoices (still unpaid after 90 days past their due date) make up a sizeable proportion of total overdue invoices. Their value rose to 9%, up from 5% one year ago. In addition, there was a threefold increase in write-offs of uncollectable receivables (3%, up from 1% last year). In particular, the success rate in collecting outstanding debts was very low in both the construction and the food & beverage industries.
Many respondents in Canada also reported a knock-on effect of late payments. They had to delay paying their own suppliers and spent more time, resources and money chasing overdue invoices. In addition, many needed to strengthen their internal credit control procedures.
As everywhere else in the world, uncertainty is high in Canada. With insolvencies on the rise and payment practices deteriorating, Canadian firms should take a strategic approach to managing credit risk.”
Payment duration in Canada
d = average days Sample: companies interviewed (active in domestic and foreign markets) Source: Atradius Payment Practices Barometer – June 2020
To mitigate customer credit risk, survey respondents in Canada reported using a mix of credit management tools and techniques, most often self-insurance and requesting payment guarantees. Self-insurance is the term used to describe internal processes utilised by businesses to monitor potential market and customer risks to payment of invoices, and the resolve to absorb payment defaults in house. Despite strengthening internal credit control procedures, working capital appeared to be locked in overdue receivables for nearly one week longer than last year. Overall, survey respondents in Canada had a pessimistic outlook for B2B customers’ payment practices, with more respondents (27%) expecting deterioration than improvement (10%).
To help counteract the impact of poor payment practices, many survey respondents said they planned to apply a range of credit management techniques. 47% planned to adjust payment terms to more closely reflect the credit capacity of their customers. 43% said they would try to avoid concentrations of credit risk and the same percentage said they intended to increase the use of payment reminders, such as dunning letters. Against this backdrop of financial strain, nearly half the survey respondents felt that late payments could force businesses to seek bank finance to support cash flow. However, 53% of respondents also believed that the willingness of banks to provide credit to the business community would increase, and the business performance of their industry would improve over the coming months.