Tech Sector Payment Trends, Insolvencies to Remain Stable This Year

Ascertaining the level of transparency in the products and life cycles of U.S. firms in the information and communications technology (ICT) industry, including knowledge about buyback arrangements for old or obsolete products, is key to choosing successful partners.

“Product life cycles still remain short and therefore a company’s long-term sustainability is driven by innovation and its ability to develop new products and bring them quickly to the market,” according to a recent report on the ICT sector by credit insurer Atradius.

The U.S. ICT market is anticipated to reach $287 billion this year, driven by increased revenues from wearables, 3D printing, virtual reality and drones, as well as a 4% increase in smart phone revenues that could reach $183 billion, the firm said. Still, some areas of the sector (e.g., tablets) may decline, with predictions of a 12% slide this year to $18 billion.

Payment trends within the industry should remain stable this year, similar to those in 2015, with common payment terms between 30 and 90 days, and some accounts taking up to 120 days, Atradius said. Payment delays in this field typically occur due to product pricing disputes, instead of liquidity issues. “Manufacturers often offer price protection or discounts on products in order to move inventory ahead of the rapid innovation of technology experienced in the market,” the firm said. “This can lead to disputes and ultimately an increase in non-payments until the issues can be resolved.”

Also, some exporters of ICT products to Brazil and Latin America have said the economic downturn and currency volatility are impacting cash flow for businesses in the region and accounts there should be closely monitored, Atradius noted.

Meanwhile, ICT insolvencies should also remain stable this year, or even increase by up to 2% in tandem with the overall business trend for American firms, particularly as the industry contains many competitors, startups and quick production cycles.

- Nicholas Stern, editorial associate

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