Survey findings for Mexico

Key survey results for Mexico

The Atradius Payment Practices Barometer survey conducted in Mexico found that the total value of B2B sales made on credit increased to 52%, up from 45% last year. The increased use of B2B trade credit could be a reflection of the higher pressure on businesses to sell and grow market share to offset the squeeze on profits in these challenging economic times. Furthermore, as the largest proportion of the credit-based B2B sales (62%) was transacted chiefly on the domestic rather than on foreign markets, it is reasonable to infer that many businesses in Mexico resorted to domestic supplier credit to fill a gap in short-term trade financing during these times of liquidity constraints.

Based on the survey findings, the average B2B payment terms in Mexico remained stable at 27 days from invoicing. Payment terms are most often set in line with company standards, as reported by 42% of the survey respondents, while for 40%, payment terms are set according to the credit capacity of the customer. Late payments from the B2B customers of Mexican respondents increased by an average of 4% compared to last year, affecting nearly half (47%) of the total value of B2B sales made on credit. This compares to 39% in Canada and 43% in the US. For 45% of respondents, B2B customers most often delay payment as they use outstanding invoices as a form of financing.

Almost the same percentage of respondents attributed late payments from B2B customers to liquidity issues. Long overdue invoices (still unpaid after over 90 days past their due dates) have more than doubled, and represent 15% of the total value of credit-based B2B sales, up from 6% one year ago. Also write-offs of uncollectable receivables doubled from 2% last year. According to respondents, debt collection was most difficult in the agri-food and chemicals industries. Late payments triggered a ripple effect throughout the supply chain with respondents in Mexico delaying payments to their own suppliers to avoid cash flow issues.

Nearly 30% of respondents needed to increase the amount of time, resources and costs they spent on chasing overdue invoices, in addition to strengthening their internal credit control procedures. One quarter of respondents reported suspending deliveries until they received payment of outstanding invoices. To protect their business from the risk of payment default, 72% of respondents reported requesting payment on cash from their B2B customers. Almost the same percentage requested payment guarantees. Despite strengthening internal credit control procedures, the country’s working capital appears to be tied in overdue receivables for nearly four days longer than last year.

Based on the Mexican survey findings, opinions are divided about the outlook for B2B payment practices over the coming months. Approximately half of the respondents did not expect any change, whereas those anticipating either an improvement or a worsening were almost equally split. Should this latter occur, respondents reported on planning to increase their in-house dunning activities (outstanding invoices reminders), in addition to requesting guarantees of payment from their B2B customers more often. A sizeable percentage (20%), planned on starting to outsource debt collection to a specialist agency.

Looking ahead, nearly three in five respondents in Mexico anticipated needing finance support from banks in the future, caused by reduced liquidity. However, respondents are also confident that banks will facilitate access to credit over the coming months to alleviate pressure on cash flow. On a positive note, nearly four in five respondents believed that sales and profits would improve over the coming months.

To mitigate trade credit risks, Mexican businesses across almost all industries are increasing even further their use of credit insurance for added protection.”

Payment duration in Mexico

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.

45%

year-over-year increase in payment defaults on B2B invoices in Mexico

Atradius Payment Practices Barometer – June 2020

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