Payment practices report
Survey results for Mexico
The Atradius Payment Practices Barometer is an annual survey that assesses business payment behaviour throughout the world.
The survey explores a range of topics including payment terms, payment delays, credit sales, and DSO (Days Sales Outstanding), results of which provide a good indication of outlook for businesses in Mexico.
Karel van Laack,
Country Manager for Mexico commented on the report:
“The COVID-19 pandemic is the driving force behind deteriorating economic conditions in Mexico. According to Atradius’s Payment Practices Barometer survey of Mexican businesses, late payments for firms in all industries are widespread, and the amount of trade receivables firms have written off has doubled since last year. We expect an uptick in payment delays in defaults throughout the rest of 2020, with SMEs suffering more than larger firms.
Even though economic conditions and payment practices are worsening, survey respondents express hope and strong morale – several industries feel confident that they can achieve growth this year. That confidence is especially strong in the agri-food industry, where 90% of respondents believe sales and profits will improve over the next year."
The economic outlook for Mexico is expected to deteriorate steeply this year, due to the severe economic contraction caused by the pandemic downturn. The level and intensity of the contraction is still to be seen as the pandemic continues, making it difficult to pin down predictions over the ultimate impact on the economic system.
However, what we have seen is that the pandemic has exacerbated financial conditions in the second quarter, negatively impacting Mexican SMEs in particular. The current economic downturn will aggravate the situation for many businesses in a wide range of industries, weakening the financial strength of many and triggering an increase in payment delays and defaults in the coming months.
Key takeaways from the report
Late payments are a common feature of B2B trade
Across all the industries surveyed for the Atradius Payment Practices Barometer late payments were fairly widespread. The total value of outstanding payments for the country increased by 4% year-on-year and the average DSO stands at 62 days, well above the regional average of 45 days. The total value of overdue invoices averaged between 41% in the chemicals industry, to 55% in the paper industry.
The amount of outstanding debt written off doubles year-on-year When compared to last year, the total amount of uncollectable receivables written off by businesses in Mexico doubled from 2% to 4%. Most industries averaged a write-off rate of between 3% and 4% this year. This trend was bucked by the paper industry, which recorded a much bigger figure: writing off 8% of total receivables as uncollectable. Perhaps unsurprisingly the paper industry was also the sector that said they most favoured cash payments this year.
Despite late payments and economic contraction business morale is strong Most of the survey respondents Several of the industries polled expressed confidence and predicted growth for the coming year. About 90% of respondents from Mexico’s agri-food industry believed their sector’s sales and profits would improve over the next 12 months, an opinion shared by almost all of the respondents surveyed in both the steel/metals and transport industries. Overall, almost four in five respondents in Mexico expected the business performance of their industry to improve.
Mexican businesses increase their use of trade credit The total value of B2B sales made on credit in Mexico increased by 7% last year, possibly representing greater business competition or a reflection of short-term financing offered by businesses to their customers.
A significant proportion of businesses in Mexico employ credit insurance Although not consistent across all sectors, several industries in Mexico reported favouring credit insurance. This is true of the chemicals industry in particular where about three-quarters of the survey’s respondents said they used credit insurance to help manage their accounts receivable. The steel/metals industry also cited trade credit insurance as a key aspect of their credit management strategy.