Survey findings for Canada
B2B credit sales remain stable following the outbreak of the pandemic
The Payment Practices Barometer survey findings reveal that the majority of businesses polled in Canada (63%) did not significantly increase credit sales in the months following the outbreak of the pandemic.
This contrasts with the US and Mexico where 51% and 62% respectively told us they traded on credit more often than they did one year ago. Overall, businesses surveyed in Canada made an average of 54% of the total value of B2B sales on credit over the past year. 58% occurred on the domestic market and the
remainder on export markets. Among the industries surveyed in Canada (chemicals/pharma, steel/metals and services), the most conservative trade credit policy was seen in the chemicals/pharma industry, whereas businesses in steel/metals displayed a more liberal approach. However, the greatest appetite for credit sales is seen in the Canadian services sector, which favoured trading on credit domestically. The chemicals/pharma industry was the most active in trading on credit with B2B customers abroad.
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Businesses offer credit to consolidate established trade relations
55% of the businesses polled in Canada told us they accepted trade credit requests to encourage repeat business with established B2B customers (compared to 38% in the US and 53% in Mexico). 23% accepted trade credit requests to win new customers (compared to 40% in the US and 26% in Mexico). Additional reasons for offering trade credit cited by respondents in Canada include: staying
competitive in their markets, and allowing customers time to pay (for example, if they are awaiting payment from their buyers, need to sell goods on, or to obtain bank finance). Interestingly, the latter appears more common in Canada than it is in the US and Mexico. This suggests that trade credit is more often used as a short-term trade finance tool by Canadian suppliers than their peers in the region.
of the businesses surveyed in Canada plan to employ credit insurance over the coming months, (more than the 26% reporting the same in the US and 31% in Mexico).
Atradius Payment Practices Barometer – July 2021
Credit management costs increased during the pandemic
48% of respondents in Canada reported increased administrative costs associated with the management of accounts receivable during the year following the outbreak of the pandemic (compared to 55% in the US and 37% in Mexico). This is a fairly sizeable increase in costs considering that most businesses in Canada did not increase their credit trade. Most of the cost increases were reported by businesses that relied on their own internal credit management resources, self-insurance, (as opposed to using trade credit insurance, factoring or professional debt collection services, for example). Correspondingly, self-insurance was the mostcommonly used credit management technique in Canada (as reported by 72%, compared to 69% in the US and 66% in Mexico). Businesses told us
that credit management costs also applied to acquiring and monitoring credit information. This was sourced most often through the customer’s financial statements, credit information from specialist agencies monitoring customer credit risk and through the evaluation of internal information provided by the customer.
40% of respondents in Canada (same as in Mexico and compared to 37% in the US) reported increased capital costs in the months following the outbreak of the pandemic (i.e. financing or interest costs paid during the time-lag between the credit sale and the settlement of the invoices). 35% of businesses reported increased costs for the collection of unpaid invoices. This is a lower percentage than last year, but is similar to the survey results seen in the US (38%) and Mexico (36%).
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Two-thirds of businesses employed trade credit insurance last year
Survey data shows that second to self-insurance a significant number of businesses employed trade credit insurance after the outbreak of the pandemic. This appears to be used by 65% of respondents in Canada, compared to 53% in the US and 68% in Mexico. Against this backdrop, it is not surprising that respondents in Canada (and in Mexico) appeared to be more successful in keeping costs for collection of long-term overdue trade debts (over 90 days overdue) under control. Increases in these costs were reported by 23% in Canada, compared to 30% in the US and 20% in Mexico. Consistent with this, year-on-year increases in DSO were reported by just 27% of respondents in Canada,
compared to 36% in the US and 38% in Mexico.
Businesses in Canada reported by far the lowest levels of deterioration in customer payment practices in the USMCA region over the past year. 32% reported deterioration in Canada, 47% in the US and 44% in Mexico. This relatively favorable picture contrasts with the more negative result of the 35% of businesses that reported increases in collection costs.
However, this may be explained by the tight grip exerted by Canadian businesses on curbing the impact of customer credit risk and unlocking working capital tied up in overdue receivables.
Average payment terms hold steady over the past year
To mitigate credit risk, 65% of the businesses polled in Canada told us they did not vary payment terms in the year that followed the outbreak of the pandemic (higher than the US and Mexico with 49% and 54% respectively). Over the past year 24% offered customers longer time to settle invoices (41% in the US and 40% in Mexico). The Canadian chemicals/pharma industry displayed the most conservative approach, with only 12% of respondents offering more relaxed payment terms over the past year, averaging 41 days from invoicing. In contrast, 30% of the
steel/metals industry offered more relaxed payment terms over the past year, averaging 47 days from invoicing. Consistent with the regional pattern, most Canadian businesses set payment terms that reflect company standards. This was reported by 45% of survey respondents, compared to 48% in the US and 61% in Mexico. Although applied less often, both the credit capacity of the customer and the payment terms received by their own suppliers also dictate payment terms set by Canadian businesses.
Businesses turn to external financing to fund credit risk management costs
Businesses reporting an increase in late payments told us they allocated more time and resources to chase unpaid B2B accounts and set in place more frequent customer credit risk monitoring activities. This tallies with the increases in administrative costs seen earlier. Possibly as a result of these costs impacting the business and operational working capital, businesses polled in Canada accessed external financing more frequently than their peers in the US and Mexico. Further detail can be found below in the overview by industry section.
An average of 48% of the total
value of B2B invoices issued by businesses polled in Canada are overdue (compared to 50% in the US and 45% in Mexico). 5% of long-term overdue invoices (more than 90 days overdue) were written off. This is the same percentage as reported in Mexico and lower than the 8% for the US. As seen earlier, 32% of businesses polled in Canada reported deterioration of B2B customers’ payment practices over the past year (much lower than the 47% in the US and 44% in Mexico). This suggests a more benign trade credit risk environment for Canadian businesses than for their peers in the region.
Containing credit management costs considered main threat to business profitability
24% of businesses polled in Canada are concerned about the containment of credit management costs over the coming months. This is the highest parentage in the USMCA region and compares to 19% in the US and 12% in Mexico. 22% are worried about the uncertain outlook for the pandemic worldwide (18% of respondents in the US and 28% in Mexico).
Maintaining adequate cash flow is also mentioned as a factor that could adversely impact business profitability, although cited less often by the businesses we polled
in Canada (19%) (and reported by 19% in US and 31% in Mexico). Interestingly, a potential resurgence in geopolitical tensions affecting international trade was also only cited by a small proportion of the businesses we surveyed, although this was listed more often by businesses in the Canada (8%) compared to the region (5% in the US and 2% in Mexico).
This may point to Canadian businesses being more skeptical than their peers across the region over greater geopolitical stability going forward.
Canadian business confidence is lowest in USMCA region
Improvement in business performance over the next 12 months is anticipated by only 38% of respondents in Canada (compared to 60% in the US and 81% in Mexico). 45% anticipates that potential improvement will come from a combination of a rebound in the domestic economy and healthier export flows (an opinion shared by 39% in the US and 48% in Mexico). 31% believes the improvement in performance will be mainly due to a rebound of
the domestic economy (41% in the US and 27% in Mexico). 24% anticipates improvement in their business performance will stem exclusively from increased export flows (compared to 18% in the US and 24% Mexico). Looking ahead, 51% of businesses in Canada told us they expected credit would be used more often as a short-term trade finance tool over the next 12 months (significantly more than in the US 32% and Mexico 36%).
Credit insurance planned by more businesses in Canada than across the region
Looking ahead, 36% of businesses plan to employ credit insurance over the coming months, (more than the 26% reporting the same in the US and 31% in Mexico). The majority, however, favour self-insurance with 41% planning to increase their internal credit management resources to mitigate the impact of trade credit risk on the business (compared to 51% in the US and 31% in Mexico). For businesses in Canada these will include: offering discounts for early payment of invoices, adjusting credit terms to reflect the credit risk profile of the customer and reducing reliance on single large buyers to avoid trade credit
risk concentrations in their sales ledgers. 38% plan on requesting cash payments more often over the coming months (largely in line with the 36% of respondents reporting the same in the US and Mexico alike).
Despite these differing approaches to credit management, Canadian businesses share a common target with their peers of keeping Days Sales Outstanding (DSO) under control over the coming months. 34% of businesses polled in Canada expressed concern over the potential for an upward trend of DSO over the coming months (compared to 43% in the US and 38% than in Mexico).