Overview of payment practices
Following the outbreak of the pandemic domestic agrifood businesses tended to favor cash payments. When selling on credit, they called for prompt payment of invoices, offering discounts to speed up cash inflows. Looking ahead, this focus on liquidity protection and tightening of credit
control procedures is set to continue, with many businesses telling us that they expect deterioration in business over the coming months. A significant proportion of the industry plans to use trade credit insurance more often.
Nearly half of all B2B sales in the industry is overdue
49% of the total value of credit sales is overdue, with the majority of customers settling overdue invoices on average two weeks past the due date. 7% of the total value of the industry’s credit sales was written off. To minimise the impact of late payments and liquidity shortages, 46% of respondents told us they delayed paying suppliers. 30% reported suspending deliveries until
invoices were settled, and dedicated additional time and resources to managing trade credit risk internally. 46% reported no change in DSO over the past year. However, 33% experienced an increase, leading to the current 123-day DSO average, and tallies with the widespread concern expressed by businesses about maintaining adequate cash flow levels over the coming months.
of the total value of credit sales in the Agri/food industry in Mexico is overdue
Atradius Payment Practices Barometer – July 2021
Trade credit insurance is preferred credit management tool
68% of the Mexican agri-food industry employ trade credit insurance. Although the preferred credit management tool, a similar percentage mitigates customer credit risk through factoring or offering discounts for early payment of invoices. Many businesses also reported internal management of trade debt collection activities. Looking ahead, agri-food businesses are most concerned about maintaining adequate cash flow and pandemic uncertainties. This may explain
why far more businesses in the industry expect DSO to deteriorate (58%) than to improve (25%) over the coming months. Despite this, business confidence appears to be positive with 83% of industry respondents anticipating improvement in performance, mainly driven by healthier domestic economic conditions. Against this background, the majority (63%) anticipates credit sales to become more widespread over the coming months, mainly to boost demand.
More than 80% of chemicals businesses in Mexico are small or medium sized, and the main funding vehicles in the industry are supply chains. The sector has experienced a variable 12 months, with suppliers to the automotive, construction or textile sectors more severely affected by the economic downturn than those supplying food or healthcare markets. Pharma businesses, in
particular, have benefited from higher demand during the pandemic, and the industry is expected to grow by about 3% this year. Half of the industry’s output is sold on credit and the sector enjoys widespread use of credit insurance, not least as businesses try to address the impact of the pandemic through strategic credit management.
Payment practices deteriorated over the past year
49% of the businesses polled in the chemicals/pharma industry told us that customer payment practices deteriorated over the past year. Only 7% reported improvement and the remainder, no change. Late payments affect an average of 45% of the total value of B2B credit sales in the industry. Overdue invoices are settled two weeks late on average. 3% of the total value of the industry’s credit sales was written off. To reduce the impact of late payments on the business, a significant number of respondents (35%) told us they spent more time, costs and resources on chasing unpaid invoices.
To avoid liquidity shortfalls, businesses delayed paying suppliers and suspended
deliveries until payment receipt. Of note, 42% of the businesses polled in the industry reported marked annual DSO increases, up to a 115-day average (twice as long as the average payment term in the industry). This was chiefly due to increased credit sales coupled with significantly longer delays in collecting longoutstanding invoices of high value.
This may also be why a significant number of industry respondents reported increased capital costs over the past year (i.e. financing or interest costs incurred in the period before the invoice is paid). respondents additionally cited increased costs in accessing credit information credit quality assessment and monitoring.
of the businesses polled in the chemicals/pharma industry told us that customer payment practices deteriorated over the past year.
Atradius Payment Practices Barometer – July 2021
DSO expected to hold steady due to use of credit insurance
44% of chemicals/pharma anticipates no change in DSO over the coming months. This is likely due to the widespread use of trade credit insurance seen in the sector. However, industry respondents did express concern about the pandemic, and its potential impact on the domestic economy over the coming months. This may explain why businesses in the industry
told us that growth is likely to come from a combination of stronger exports and more benign conditions within the domestic economy. Many chemicals/pharma businesses plan to continue offering trade credit in order to stimulate demand and to provide customers with access to short-term trade financing.
Decreased demand from key buyer sec¬tors, alongside supply chain disruptions due to the economic downturn, severely impacted the Mexican steel/metals industry last year. This led to increased late payments in the second half of 2020. This year, a slight industry rebound, chiefly triggered by rising demand for metals from China and global demand for batteries for electric cars, contributed to soften insolvency
rates. Although major uncertainty and challenges remain, many industry respondents share a positive view of 2021. Here credit sales will offer many opportunities to stimulate demand and offer short-term finance relief to financially distressed companies. However, businesses will need to safeguard their liquidity position through strategic credit management, an area the industry appears adept at.
Trade credit insurance is leading credit management tool in the industry
66% of the steels/metal industry uses trade credit insurance to minimise credit risk and to help support trade growth. 55% told us that they could effectively cushion the impact of DSO shifts on their business over the past year. The 96–day average DSO suggests a fairly strong invoice-to-cash turnaround alongside the 65-day average payment terms. This also indicates high efficiency in the collection of high-value overdue invoices, and a positive impact on the liquidity position of the business.
44% of all B2B credit sales are
overdue and are settled on average within 17 days past the due date. 5% of the total value of receivables was written off. 46% of industry respondents told us that their customers’ payment practices deteriorated over the past year. Only 8% reported improvement and the remainder, no change. To minimize the impact of customer credit risk on the business, nearly 40% of industry respondents reported spending more resources and time chasing overdue invoices and 32% on tightening credit management processes.
Businesses worry about maintaining adequate cash flow over the coming months
Looking ahead, the majority of businesses in the steel/metals industry told us that their top concern is maintaining adequate cash flow levels. Despite concern about the downturn in both the domestic and global economy and potential drop in demand for their products and services, 82% of respondents expressed confidence that their business performance would improve over the coming months. The majority (51%) believe that growth is likely to stem from both a rebound of the domestic
economy and increased exports. Just 27% anticipates improvement will come solely from stronger demand from foreign customers. even fewer (22%) anticipates improvement driven by a rebound in the domestic economy. Against this backdrop, 49% of Mexican steel/metals businesses told us they believe credit sales will be used more often to stimulate demand. 39% maintain credit will be used to provide short-term trade finance for customers experiencing financial distress.