Survey findings for the US
Credit sales increased in the months following the outbreak of the pandemic
51% of the businesses polled in the US reported an increase (37% no change and 12% a decrease) in the use of trade credit in the months following the outbreak of the pandemic. In the USMCA region, this compared to 62% of respondents in Mexico and 20% in Canada.
The focus industries in the US were agri-food, ICT/electronics and steel/metals. Based on survey findings, ICT/electronics businesses offered credit most often. on average, 54% of the total value of their B2B sales were on credit. The US steel/metals industry ranks a close second at
53% (same as in Canada, 57% in Mexico). The agri-food industry follows with an average of 47% of the total value of B2B sales on credit in the US (38% average for Mexico agrifoods industry, agri-foods industry was not surveyed in Canada). overall, US businesses were more inclined to offer credit to domestic customers. 60% of domestic sales were on credit while only 40% were on exports (highest in the agri-food industry at 67%). In the US ICT/industry 58% of domestic B2B sales of products and services were sold on credit, whereas 42% were on export.
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Trade credit chiefly used to win new customers during the pandemic
40% of businesses polled in the US reported they extended trade credit to win new customers (Mexico 26%, Canada 23%). Additional reasons for offering trade credit cited by US respondents include: encouraging repeat business with established customers, staying competitive in their markets, and allowing customers time to pay for the goods and services purchased on credit (for example, if they are
awaiting payment from their buyers, need to sell goods on, or to obtain bank finance). However, these reasons for offering credit were reported far less frequently by businesses in the US than by their peers in the region. Further insight into respective response rates for Canada and Mexico can be found in the respective country Payment Practices Barometer survey reports.
of the survey respondents in the US reported deterioration in payment practices of B2B customers over the past year.
Atradius Payment Practices Barometer – July 2021
The cost of managing debt increased during the pandemic
Survey data highlights that, in the year following the outbreak of the pandemic, more businesses in the US (55%) than in Canada (48%) and Mexico (37%) reported an increase in administrative costs associated with managing accounts receivable. This was most often seen with businesses that self-insure credit risk. Businesses also cited an increase in the cost of acquiring credit information (most often through the customers’ financial statements and bank references), and evaluating customer credit risk based on internal information provided by the customer. Fewer US respondents (37%) reported increased financing or interest costs during the time between the credit sale and payment for the purchase than respondents in Canada and Mexico (average response rate 40%). Increased
costs to collect overdue invoices were reported by survey respondents in the US almost as often as by their peers in the region (average response rate: 37%). Interestingly, increased costs for the collection of trade debts more than 90 days overdue were reported by far more businesses in the US (30%) than in Canada (23%) and Mexico (20%). In the US, this was most often the case for businesses that do not outsource the collection of long overdue invoices to a collections company. With 52% of the total value of B2B sales of the industries surveyed in the US transacted on credit, costs associated with the provision of trade credit need to be carefully managed. If this is not done, costs could easily jeopardise the profitability of the business, especially if profit margins are tight.
US: top 5 greatest challenges to business profitability in 2021
US: on average, within what time frame do your B2B customers pay their invoices?
US businesses relaxed average payment terms over the past year
41% of businesses polled in the US offered customers more time to settle invoices over the past year (compared to 40% in Mexico and 24% in Canada). Payment terms in the US ICT/electronics industry average 47 days, and in the agrifood industry 38 days from invoicing. This compares to 20 days for agri-food in Mexico, (data not available for Canada). In contrast, the average 46-day payments term in the US steel/metals industry compares to a 47-day average and 65-day average in the same industry in Canada and Mexico respectively. Most often, payment terms set by US businesses reflect company standards. This was reported by
48% of survey respondents in the US compared to 45% in Canada and 61% in Mexico. Although reported less often, both the credit capacity of the customer and the payment terms received by their own suppliers dictate payment terms set by many US businesses. Trade credit insurance was also mentioned by many businesses as an important factor influencing credit terms. 30% of businesses in the US told us that credit insurance cover enabled them to offer more competitive payment terms to customers, as the insurance offers protection against losses if the customer does not pay. In Mexico this was cited by 27% of businesses and in Canada, 19%.
US grappling with more late payments and write-offs than regional peers
More respondents in the US (47%) than in Mexico (44%) and Canada (32%) reported deterioration in customer payment practices over the past year. An average of 50% of all B2B invoices issued in the US are paid late (compared to 48% in Canada and 45% in Mexico). 8% of long overdue invoices (more than 90 days overdue) were written off by US businesses. This is higher than the 5% average for both Canada and Mexico.
The fact that businesses in the US faced greater customer credit risk and were harder hit by late and
non-payment of invoices than their peers in the region may reflect different approaches to trade credit risk management taken by US businesses compared to their peers across the region. These include more frequently withholding payment to suppliers to minimise liquidity issues, delaying investment in resources for business growth in order to contain costs, and requesting bank overdraft extensions more often. Further detail can be found in the overview by industry section below.
Spiraling cost of managing trade debt is main threat to profitability
Although containing credit management costs represents the top concern of businesses polled in the US (19% of respondents), it was the top concern to even more respondents in Canada (24%) (Mexico 12%). In addition, 18% of respondents in the US, compared to 22% in Canada and 28% in Mexico cited concerns about the unpredictability of the pandemic over the coming months.
These top the list of factors which US businesses believe could adversely impact their profitability. other factors mentioned that could negatively impact business profitability include: a potential fall in demand for products and services and maintaining adequate cash flow (this was the greatest concern for
businesses in Mexico). Of note, ongoing supply chain disruptions affecting international trade were reported as a concern for US businesses, more than for their peers in the region.
The potential for bank lending restrictions to limit access to liquidity financing was also only cited by a small proportion of the businesses we surveyed, although compared to the region, this was listed more often by businesses in the US. Interestingly, a potential resurgence in geopolitical tensions affecting international trade is at the bottom of the list of US business concerns. The same is true for respondents in Canada and Mexico and may reflect a belief across the region that geopolitical stability is increasing.
US businesses confident about outlook for their business performance over the coming months
60% of US businesses are optimistic that the performance of their business will improve over the next 12 months (regional averages: 81% Mexico, 36% Canada). 41% of US businesses believe the improvement in performance will be mainly due to a rebound of the domestic economy (Mexico 27%, Canada 31%).
In contrast, 39% anticipate the improvement will come from a combination of a rebound in the domestic economy and healthier export flows (Mexico 48%, Canada 45%). 20% of US respondents anticipate improvement in their business performance will come
exclusively from increased export flows (24% in both Mexico and Canada). Amid these positive expectations for economic and trade conditions over the coming months, 36% of US businesses told us they expect selling on credit will become an increasingly widespread business practice over the next 12 months (Mexico 48%, Canada 18%). In particular, this would be aimed at stimulating sales to industries where demand plunged due to the pandemic. 32% of US businesses believe that credit would be used more often as a short-term trade finance tool (Mexico 36%, Canada 51%).
A quarter of US businesses plan to use trade credit insurance over the coming months
US businesses told us they are concerned that a potential fall in demand for products and services could impact their profitability over the coming months, and that they intend to counteract this with a more liberal trade credit policy.
Therefore, it comes as no surprise that the businesses polled placed emphasis on more frequent use of trade credit risk mitigating tools over the coming months. More than a quarter of US respondents (26%) told us they plan to use trade credit insurance (although this is lower than Mexico 31% and Canada 36%). However more than half of the businesses polled in the US (51%) told us they plan to retain and manage trade credit risk internally through self-insurance more often over the coming months (Mexico 31%, Canada 41%).
35% said they will reduce reliance on single large buyers to avoid trade credit risk concentrations in their sales ledgers (Mexico 21%, Canada 31%). 35% also told us that they plan on outsourcing trade debt collection to a collections company over the coming months (Mexico 27%, Canada 24%). Despite these differing approaches to credit management, US businesses share a common target with their regional peers of keeping Days Sales outstanding (DSo) under control over the coming months. In particular, more businesses polled in the US (43%) than in Mexico (38%) and Canada (34%) expressed concern about the potential for DSO to trend upward over the coming months.