The U.K. retains the spotlight when it comes to the fight against late supplier payments, but the market isn't the only one in which vendors struggle to get paid on time. North America has its own late payments problem, new research shows, and the data suggests it's getting worse — despite a strengthening economy, particularly in the U.S.
"It is interesting that in a healthy, growing economy, bad debt continues to plague the B2B markets," said David Huey, president and regional director of U.S., Canada and Mexico at Atradius, which has just released new analysis on B2B payment practices across North America. Atradius' latest report, "The Americas: an increase of overdue B2B receivables," found that 51 percent of survey respondents said their B2B outstanding invoices were deemed uncollectible because customers had gone out of business or declared bankruptcy. Huey called this statistic "eye opening."
The report also revealed that American vendors are beginning to shy away from offering their corporate customers' credit terms to overseas customers.
"If you do not offer terms, another supplier certainly will," Huey told PYMNTS in an email, adding that — despite the risks of extending credit to global customers — there is no significant difference in data losses compared to extending credit to domestic customers.
Atradius' survey was published the same day that a new report in The Wall Street Journal (WSJ) highlighted the U.S.'s struggle with late vendor payments. According to the publication, researchers at The Hackett Group are readying to publish their own survey next month, which estimates that 1,000 of the largest U.S. public companies have a collective $1.1 trillion in supplier payments — payments not yet received from their own customers — and inventories.
"Financial chiefs at U.S. companies are holding back payments to their suppliers for longer than at any point in the past decade," the publication stated, "a push that is helping them keep more cash on hand that otherwise would be tied up in their businesses."
Atradius research found that, throughout the continent, the average portion of B2B receivables declared uncollectible slightly declined from 2.1 percent in 2017 to 1.8 percent this year. Across the region, though, researchers found that companies are taking longer to pay their suppliers: 50 percent of invoices are past their due date this year, compared to 48.8 percent in 2017. Average Days Sales Outstanding (DSO) for the Americas hit 37 days, a two-day increase in 2017. In the U.S., average supplier payment terms are at 32 days, yet average actual payment length averages are at 55 days.
The U.S. emerged as having the second-highest portion of survey respondents reporting that late payments from their corporate customers are frequent (almost 91 percent of U.S. businesses reported this issue, compared to more than 94 percent of Mexico respondents). Promisingly, Atradius found the U.S. was the only country in the region to not experience an increase in average portion of overdue invoices from businesses. But Hackett's survey suggests that this trend dissipates when the focus lands on the top-1,000 public corporates in the U.S.
The largest public enterprises took an average of 56.7 days to pay suppliers last year, the longest timeframe in the last decade, and up from 53.3 days in 2016, Hackett found. Analysts pointed to rising costs of borrowing as one driver behind businesses' decision to withhold cash from their vendors.
"Companies are going after payables first because you're pushing that burden outside of your organization and onto your supplier," explained Hackett associate principal Craig Bailey in the WSJ.
In another interview with the publication, Chief Financial Officer Donald Allan Jr. of Stanley Black & Decker said that invoice payment delays are part of a strategic partnership with vendors. The company paid its invoices 83 days after issuance on average last year, and has been taking at least two months to pay supplier invoices since 2005. Reports said the strategy has unlocked nearly $500 million from the company's working capital.
"It was a partnership," Allan explained, noting that the company works with suppliers on how they can lower their own costs. "We were saying we're going to help you be more efficient and effective so you can generate more profit and drive more volume through your system."
Lengthening supplier payment terms have emerged as an affordable way for corporates to extend their cash flows, but are placing increasing cash flow pressure on their vendors. This tug-and-pull is the subject of much B2B FinTech innovation that has emerged in recent years, from commercial cards to cash flow forecasting automation. According to Atradius's Huey, FinTech's impact on late supplier payments will have a limited impact so long as corporate buyers want to extend payment terms.
"FinTech and blockchain technology will certainly have a significant impact over time on contract and settlement efficiency," Huey told PYMNTS. "However, I think what has acted as a sea anchor, and will continue to do so, is the cash flow effect. Even if a buyer has the technical ability to pay immediately, they still need and expect payment terms to allow them to sell, collect and — only then — make payment."