Overview of payment practices

By industry

Agri-food

Almost half of the total value of B2B invoices in the Mexican agri-food industry is overdue

Survey respondents from the Mexican agri-food industry reported that, on average, 49% of the total value of their B2B invoices was overdue. 13% extended past 90 days overdue and 3% was written off as uncollectable.

Nearly half of the respondents reported that their B2B customers paid invoices late, due to using outstanding invoices as a form of financing, or because they had a lack of liquidity. DSO (Days Sales Outstanding) in the Mexican agri-food industry averages 69 days (compared to a 62-day average for the country).

Most agri-food businesses in Mexico request payment guarantees

A majority of respondents (83%) reported that they most often requested guarantees of payment from B2B credit customers. A similar percentage of respondents self-insured, monitoring markets and customers, and covering the cost of late and unpaid invoices in-house. To protect their cash flow and business profitability, just over half of the respondents from the industry (51%) reported that they needed to delay payments to their own suppliers to avoid cash flow constraints.

A sizeable percentage of respondents reported they needed to invest additional time, resources and costs to chase overdue invoices and strengthen their internal credit control procedures (37% of respondents in each case).

30%

of respondents in the Mexican agri-food industry expect customer credit risks to worsen over the coming months

Atradius Payment Practices Barometer – June 2020

Vast majority of Mexican agri-food industry anticipates growth

Approximately nine in ten survey respondents from the Mexican agri-food industry believed that the sector’s business performance would improve over the next 12 months. This overwhelmingly positive attitude was echoed by the majority of respondents who expected the risks associated with customer credit to remain stable over the coming months (48%), as opposed to those who anticpated an increase in risk (30%). Most of the respondents predicted that any rise in credit risk would have an adverse impact on their DSO, resulting in a reduction in cash flow and the investment capacity of the business.

To strengthen credit management over the coming months, the respondents said they planned to either request cash payment more frequently, or increase the frequency of their dunning payment reminders (35% of respondents for each). Nearly three in five respondents from Mexico’s agri-food industry are of the opinion that dependence on bank finance will increase over the coming months, caused in part by outstanding invoices. However, most respondents from the industry (64%) expect that banks will provide more credit to businesses over the same period.

Uncollectable B2B receivables in Mexico

(% of total value of B2B receivables)

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

Chemicals

Nearly two in five chemicals businesses use payment delays as short-term finance

According to nearly 40% of survey respondents, B2B customers in Mexico’s chemicals Mexico delayed payments as they used outstanding invoices as a form of financing. DSO in the Mexican chemicals industry averages 74 days (country average: 62 days).

Respondents from the chemicals industry reported that, on average, 41% of the total value of B2B invoices was overdue. 12% extended past 90 days overdue, and 4% was written off as uncollectable.

Most chemicals businesses in Mexico use credit insurance

AA significant majority of respondents from the chemicals industry in Mexico (75%) managed their account receivables through trade credit insurance, and employed a strategic approach to credit management. An almost equal percentage (76%) said that they often requested guarantees of payment from their B2B credit customers.

To minimise the risk of payment default associated with trading on credit, a sizeable proportion of respondents from the Mexican chemicals industry (37%) reported that they needed to increase the amount of time, resources and costs spent to chase overdue invoices and strengthen their internal credit control functions.

Dependence on bank finance expected to increase in the Mexican chemicals industry

Nearly half of the respondents (49%) believed that industry debt caused by late payments would increase along with dependence on bank finance over the coming months. However, most respondents from the industry (59%) expected banks would facilitate access to credit for businesses over the same period. Slightly more respondents (33%) expected customer credit risk to worsen than to improve (29%) over the coming months.

Most of the respondents expected this to trigger an upswing in long overdue invoices, which in turn is expected to result in a negative impact on their DSO. In an attempt to minimise the amount of overdue invoices, a sizeable percentage of respondents from the Mexican chemicals industry (33%) said they planned to offer discounts more frequently for early settlement of invoices. On a positive note, three in five respondents believed that sales and profits would improve over the next 12 months.

55%

of the total value of B2B invoices in the Mexican paper industry was reported to be overdue

Atradius Payment Practices Barometer – June 2020

Paper

One quarter of the total value of invoices in Mexico’s paper industry is more than 90 days overdue

Respondents from Mexico’s paper industry reported that, on average, 55% of the total value of B2B invoices was overdue. One quarter (25%) was more than 90 days overdue and 8% was written off as uncollectable. According to 45% of survey respondents, late payments from B2B customers are most often attributable to inefficiencies of the banking system

Despite such widespread evidence of overdue invoices, DSO in the paper industry in Mexico is far from the worst in the country averaging about 46 days (compared to a 62-day country average).

Cash is most often requested form of payment in the Mexican B2B paper industry

To safeguard their liquidity position and ultimately business profitability, the majority of respondents in the Mexican paper industry (82%) reported that they most frequently request payment on cash from their B2B customers, while 67% requested guarantees of payment prior to selling on credit terms.

Due to late payments from their B2B customers, 43% of respondents reported that they needed to delay payments to their own suppliers to avoid cash flow issues, while 30% of respondents needed to invest in additional resources to strengthen their internal credit control procedures.

Customer credit risk expected to remain stable in the Mexican paper industry

Significantly more respondents (46%) expected customer credit risk to remain stable than those expecting a reduction of risk (29%) over the coming months. One quarter of respondents, though, expected this risk to deteriorate, leading to an upswing in long overdue payments and a consequent lengthening of DSO. In response to the anticipated negative trend of B2B customers’ payment habits, respondents said they planned to increase the efficiency of their debt collection processes by either increasing their in-house dunning activities (payment reminders) or outsourcing to a specialist agency.

Within the frame of their trade credit policy, respondents said they planned to strengthen credit control by reducing concentrations of customer credit risk in their sales ledger. Most respondents (60%) expressed concern over a perceived need to increase dependence on bank finance caused by late payments leading to growing debt within the industry. However, a sizeable proportion of respondents (45%) said they expected banks to continue providing credit to businesses. 55% of respondents anticipated an improvement in business performance over the next 12 months.

Steel / metals

Late payment is often used as a form of short-term finance in the steel / metals industry

Survey responses in Mexico’s steel/metals industry highlighted that an average of 52% of the total value of B2B invoices was overdue, 16% was more than 90 days overdue and 4% was written off as uncollectable.

For nearly 70% of the respondents, B2B customers delayed payments as they used outstanding invoices as a form of short-term finance, while just over half of respondents (53%) reported that B2B late payments were most often due to lack of liquidity. Average DSO in the Mexican steel/metals industry is 45 days (lower than the 62-day country average).

Majority of Mexican steel / metals industry request payment guarantees

A vast majority of respondents in Mexico’s steel/metals industry (74%) requested guarantees of payment from B2B credit customers. Within the frame of their trade credit policy, dunning letters (outstanding invoice reminders) were the next most frequently applied credit management technique (72% of respondents).

In order to protect cash flow and business profitability from the risk of payment default, a sizeable proportion of respondents (32%) reported that they needed to outsource debt collection to a specialist agency to alleviate strain on cash flow. Nearly 30% of respondents reported that they often needed to pursue additional financing from external sources (such as banks or factors).

Customer credit risk expected to have a negative affect DSO over the coming months

Just over half of the respondents in the Mexican steel/metals industry (53%) said they felt the risk of payment default associated with trade credit would not deteriorate. However, 22% of respondents believed they would see an increase in late payments over the coming months and a third of these expected this to have a negative impact on their DSO, adversely affecting their liquidity position. To protect their business from payment defaults, over half of the respondents said they would continue using their usual mix of credit management tools and techniques, while a sizeable percentage of respondents (30%) said they would use credit insurance.

The same percentage said they intended to focus on increasing the efficiency of debt collection either in-house or by outsourcing it to a specialist agency. 52% of respondents felt that late payment debts would result in an increase in dependence on bank finance. However, a large consensus (60% of respondents) believed the banks are open to providing more credit to businesses over the coming months. Almost all respondents from the steel/metals industry believed business performance would improve during the coming year.

53%

of respondents in the Mexican transport industry expressed concern over an increase in dependence on bank finance over the coming months

Atradius Payment Practices Barometer – June 2020

Transport

A lack of liquidity causes late payments in the Mexican transport industry

Based on survey findings in the transport industry, an average of 42% of the total value of B2B invoices was overdue. 11% was more than 90 days overdue, and 3% was written off as uncollectable.

Three in five respondents reported that B2B customers delayed payments due to lack of liquidity, while for 45% of respondents, late payments were attributable to inefficiencies of the customers’ internal payment processes. DSO in the transport industry in Mexico averages 70 days (well above the 62-day country average).

Most businesses in Mexico’s transport industry strengthened internal credit controls

Due to late payments from their B2B customers, just over two in five respondents (41%) from the transport industry in Mexico reported that they needed to strengthen their internal credit control procedures, in addition to investing in resources to chase unpaid invoices. Protection of business profitability from customer credit risk was carried out most frequently through dunning activities (payment reminders) aimed at improving the efficiency of debt collection (80% of respondents).

Prior to a B2B sale, however, the vast majority of respondents said they preferred payment in cash, or a guarantee of payment in the form of a letter of credit. Adjustments to payment terms to more closely reflect the credit capacity of the customer, and the use of credit management techniques aimed at avoiding concentrations of credit risk in the sales ledger were also frequently used in the industry.

Business growth expected by almost all of the Mexican transport sector

Almost all respondents anticipated an improvement in industry business performance over the next 12 months. This positive attitude was further reflected in the widespread opinion (61%) that banks would provide more credit to businesses over the same period.

Despite this, 53% of respondents anticipated an increased dependence on bank finance over the coming months, caused by growing levels of debt due to increasingly long overdue payments. However, fewer respondents expected a deterioration of customer credit risk (22%), than those anticipating an improvement (33%). Should payment defaults increase over the coming months, respondents said they would respond by increasing their dunning activities (payment reminders), and requesting cash payments from their B2B customers more often.

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