Payment practices report
Survey results for USA
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 the US.
Regional Director for North America commented on the report:
“The results of the Atradius Payment Practices Barometer survey of U.S. firms show a business environment strained by cash flow and liquidity issues. Many factors are at play, most notably the economic downturn caused by the COVID-19 pandemic, which has led to decreased consumer spending and industrial production and increased unemployment and corporate debt. he pressure U.S. businesses are feeling is reflected by widespread deteriorating B2B customer credit risk.
Invoice payment defaults are up significantly compared to last year, as is the number of businesses delaying payment to suppliers awaiting outstanding payments. This is true of all sectors, but particularly for the chemicals and agri- food industries. Still, U.S. businesses – most notably the ICT/electronic sector – remain optimistic, predicting growth in sales and profit over the coming year."
The US economy is facing a grim outlook. The COVID-19 containment measures have had a significant negative impact on consumer spending and have further disrupted supply chains that were already under pressure due to the Sino-US trade wars. Industrial production has slowed, affecting investment growth.
The country is facing widespread job losses, with estimates from the Bureau of Labor Statistics showing more than 20 million jobs lost in March and April, although some improvements were seen in May. Corporate debt has increased in recent years and now poses a downside risk with the deteriorating creditworthiness of businesses likely to lead to an increase in insolvencies during 2020. The economy is expected to contract by up to 7% in 2020.
Key takeaways from the report
US businesses remain optimistic despite challenging economic environment
The majority of businesses polled for the Atradius Payment Practices Barometer Survey were optimistic about the future and predicted that their industry would experience growth in terms of sales and profits during the coming year. Much of this confidence was rooted in the belief that banks would underpin industry through the provision of credit. Overall, 73% of respondents stated business performance would improve next year, although this was even higher for some sectors. For example, more than 90% of respondents in the US ICT/electronics industry predicted growth in terms of sales and profits over the next 12 months.
A sharp increase in unpaid invoices leads to some liquidity issues One of the most noteworthy results of the Atradius Payment Practices Barometer Survey was the 72% year-on-year increase in payment defaults experienced by B2B businesses throughout the US. On average, 43% of the total value of B2B invoices was overdue. This figure was even higher in some sectors. Respondents in the transport sector reported an average of 52% of the total value of B2B invoices was overdue. For the ICT/electronics industry, 47% of the total value was overdue. Late payments can cause a domino effect within supply chains where businesses are forced to delay paying their own suppliers as they wait for invoices to be settled. This pressure on cash flow was widely reported in the survey with a year-over-year increase of 32% of businesses delaying payment to their suppliers while they waited for customers to settle outstanding debts. This was reported across all sectors but was particularly prevalent in the chemicals (54%) and agri-food (45%) industries.
US businesses employ a wide range of credit management techniques US businesses stood out from their counterparts in the region with their commitment to credit management. A large majority (76%) reported managing customer credit risk in-house (self-insurance), choosing to monitor customers and markets and, where unavoidable, taking the hit if a customer defaulted on payment. 71% of the survey respondents sought payment guarantees prior to agreeing a sale and many businesses reported using techniques such as offering discounts for early payment and minimising concentrations of risk. Within specific industries, 76% of businesses in the chemical industry, 82% of the ICT/electronics industry and 88% of the transport industry self-insure. Of note is that many of the businesses that self-insure also outsource some credit management tasks. This can be seen in the ICT/electronics industry where 75% of respondents who self-insure also report using credit insurance and in the transport industry where almost two in four respondents stated they seek guarantees of payment from B2B customers or avoid risk concentrations. In addition, 68% of businesses in agri-food request B2B payment guarantees.
US businesses increase B2B payment terms, although DSO also up B2B payment terms have increased by two weeks year-over-year in the US. They now average 38 days, up from 24 days last year. Despite this significant lengthening of average terms, DSO (Days Sales Outstanding) was also high for some industries. The US chemicals industry reported an average DSO of 50 days and the transport sector 47 days. Bucking the trend towards lengthy DSO is the steel/metals industry, which reported an 18-day DSO.