Survey findings for Mexico
Use of trade credit increases following outbreak of the pandemic
62% of agri-food, chemicals/pharma and steel/metals businesses in Mexico reported an increase in the use of trade credit following the outbreak of the pandemic. This compares to 51% of businesses polled the US and 20% in Canada. 31% of businesses in Mexico reported no change and 7% a decrease. The steel/metals industry offered credit most often, with an average of 57% of the total value of B2B
sales. The chemicals/pharma industry ranks a close second at 51%. The agri-food industry follows with an average of 38%. Overall, businesses in Mexico were more likely to offer credit to domestic customers. 60% of credit sales were domestic (most commonly in the agri-food industry at 63%). 40% of credit sales were export sales (highest in the steel/metals industry at 43%).
Mexico: how do you expect your business performance to change over the coming months?
Which key developments will drive your business improvement?
Key reason for credit sales: to strengthen established trade relationships
53% of businesses reported they offered trade credit to encourage repeat business with established customers (US: 38%, Canada: 55%). 26% offered credit to win news customers (US: 40%, Canada: 23%). Additional reasons cited for offering trade credit included:
staying competitive in their markets and allowing customers additional time to pay for the goods or services. However, these latter were reported less often by businesses in Mexico than by their peers in the region.
of businesses told us they expect credit sales to become an increasingly widespread business practice over the next 12 months (US: 36%, Canada: 18%). Many told us they expect this to be aimed at stimulating sales within industries where demand plunged due to the pandemic.
Atradius Payment Practices Barometer – July 2021
Trade credit capital costs increased during the pandemic
52% of the total value of B2B sales in Mexico are sold on credit. In the year following the outbreak of the pandemic, 40% of the businesses reported an increase in the cost of financing or interest paid during the time between the credit sale and payment. (reported by 37% in the US and 41% in Canada).
This was most often seen with businesses that tried to offset the increase in capital costs through the offer of discounts for early payment. 37% of respondents reported an increase in administrative costs associated with managing accounts receivable (US: 55%, Canada: 48%).
This was most often seen with businesses that rely on internal credit management. Businesses told us that they spent more on gathering credit information for creditworthiness assessments and risk monitoring. They also saw costs increase for the collection of overdue invoices. Of note, 20% reported increased costs for the collection of invoices more than 90 days overdue (US: 30%, Canada: 23%). This was most often seen with businesses that did not employ cost-effective collection solutions, either through internal management or through outsourcing to a collection agency.
Mexico: top 5 greatest challenges to business profitability in 2021
Mexico: on average, within what time frame do your B2B customers pay their invoices?
Most businesses did not extend longer payment terms
54% of businesses told us that, over the past year, they did not give customers more time to settle invoices (US: 49%, Canada 65%). 40% offered longer payment terms (US: 41%, Canada: 24%) and the remainder reduced their payment terms. Average payment terms per industry are as follows: steel/metals 65 days (US: 46 days, Canada 47 days); chemicals/pharma 51 days (US: industry not surveyed, Canada: 41 days); agri-food 20 days (US: 38, industry not surveyed in Canada).
Most often, payment terms set by businesses in Mexico reflect company standards. This was reported by 61% of respondents (higher than the US: 48%, and Canada: 45%). Although cited less often, the availability and cost of capital needed to finance credit sales also dictate the length of payment terms set by 50% of businesses in Mexico (US: 41%, Canada: 35%). This is consistent with the attention paid by businesses to keeping capital costs under control.
Mexico leads USMCA in use of credit insurance
68% of respondents in Mexico actively employ credit insurance, compared to 53% in the US and 65% in Canada. Perhaps reflecting this, an average of 45% of all B2B invoices issued in Mexico are paid late. This is the lowest percentage in USMCA (US: 50%, Canada: 48%). 5% of long overdue invoices (more than 90 days overdue) were written off. This is in line with the average for Canada and lower than the 8% average for the US.
In addition to credit insurance, businesses also reported
managing credit through requesting letters of credit and suspending deliveries until payment of invoices. Despite this, 44% of businesses reported deterioration in customer payment practices over the past year (US: 47%, Canada: 32%). However, the fact that businesses in Mexico appear to be more successful at minimizing the impact of customer credit risk than their peers in the region is likely to be due to different approaches to trade credit risk management.
Liquidity protection is top priority
Concerns about maintaining adequate cash flow over the coming months were expressed by 31% of businesses polled in Mexico, significantly more than the 16% in the US and 19% in Canada. 28% were concerned about the unpredictability of the pandemic (US: 18%, Canada 22%).
The potential for a drop in demand for products and services was also
cited as a reason for concern, as was possible bank lending restrictions although this was raised by far fewer businesses in Mexico than by their peers in the region. Interestingly, and in line with their peers, at the bottom of the list of concerns is a potential resurgence in geopolitical tensions. This may reflect a belief across the region that geopolitical stability is increasing.
Mexico is most optimistic in USMCA about business performance outlook
81% of respondents are optimistic that the performance of their business will improve over the next 12 months, significantly more than the US (60%) and Canada (36%). 49% believe the improvement in performance will be due to a combination of a rebound in the domestic economy and healthier export flows (US: 39%, Canada: 45%). 27% believe business improvement will be driven solely a rebound of the domestic economy (US: 41%, Canada: 31%), and 24% believe it will come exclusively from increased export flows (US: 18%, Canada: 24%).
Amid these positive expectations for improvement in economic and trade conditions over the coming months, 48% of businesses told us they expect credit sales to become an increasingly widespread business practice over the next 12 months (US: 36%, Canada: 18%). Many told us they expect this to be aimed at stimulating sales within industries where demand plunged due to the pandemic. 36% of businesses believe that trade credit would be used more often as a short-term trade finance tool (US: 32%, Canada: 51%).
Payment guarantees will be preferred future credit risk mitigation tool
Looking ahead to the coming months, many businesses are planning to expand their use of credit management tools and techniques. 38% plan to use payment guarantees more often and 36% plan to ask for cash payments. 31% are increasing their focus on credit insurance and selfinsurance, specifically offering discounts for early payment of invoices.
Businesses told us their primary objectives were to lower their number of Days Sales Outstanding (DSO), and to free up the working capital tied up in long overdue receivables. 38% expressed concern about increasing DSO over the coming months (US: 43%, Canada: 34%).