Insolvencies and Late Payments Up in Survey of NAFTA Nations and Brazil

From Canada to Brazil, businesses are experiencing increased pressure from insolvencies, as some 93% of respondents to an Atradius survey reported late payments from business-to-business (B2B) customers during the past year.

One of the major factors contributing to rising insolvencies in the region is low commodity prices, albeit to a greater (Canada at 4%) or lesser (U.S. at 2%) extent depending on the nation, note analysts with trade risk insurer Atradius in a new report. Other factors leading to growing bankruptcies: dampened demand for exports in the U.S.; low oil prices and slow productivity growth in Mexico; and a recession in Brazil.

Respondents said, on average, 47.1% of the total value of domestic B2B sales on credit were paid late, up from 46.1% the prior year; late payment amounts for sales on credit from foreign sources came to 49.6%, the same as in 2015. The domestic customers of U.S. and Mexican companies with past due invoices were the slowest to finally pay in the region, at 34 days late each, on average. Brazilian firms paid 28 days later and Canadian companies paid the quickest, at 23 days after the due date.

More than 44% of Atradius survey respondents said the most common reason domestic customers pay late is liquidity concerns. About a quarter of respondents said late payments were caused by customers’ bankruptcies, up from 24.2% in 2015. Slightly fewer companies (30% in 2016 compared to 32.8% in 2015) believe their customers stretch out payment as a strategy to finance their businesses.

About 20% of businesses surveyed in the U.S., Canada and Mexico said cash flow was the biggest challenge to profitability, though the U.S. and Canada reflected concern about a likely fall in demand for products and services this year. In Mexico, cash flow concerns stemmed more from inefficiencies in receivables management, while in Brazil, difficulties in collecting outstanding invoices and opaque bank lending in the domestic market created more of a concern for cost containment according to Atradius.

As a result of slipping conditions, most survey respondents said they planned on increasing the tools they use to secure credit, from requesting secure forms of payment to checking the creditworthiness of their customers more often over the next year.

Overall, the percentage of uncollectable receivables decreased this year (1.4% on average) from 2015 (1.8%), with the U.S. slightly above the average at 1.5% and Canada below it at 1.1%.

By sector, the construction industry saw the largest proportion of overdue payments and the poorest B2B payment performance in 2016, with about half of construction invoices being paid late, Atradius said. The machine and paper industries had the most generous payment terms, averaging about 36-day invoice due dates and the food sector had the tightest terms with about 15 days from the invoice date.

- Nicholas Stern, editorial associate

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