Speed, Reliability Of B2B Payments Take A Turn For The Worse

Late payments are a problem, but just how big is the issue? The latest analysis from Atradius made some troublesome conclusions: The outlook for the speed and reliability of B2B payments isn’t great.

Last week, the company released its latest Atradius Payment Practices Barometer survey to examine B2B payment practices across the Americas. Across the board, a whopping 92 percent of businesses said they had experienced late payments from their B2B customers, generating a catalyst of late payments, as 40 percent added that they had to pay their own suppliers late because it.

“The outlook for insolvencies in the majority of the advanced markets, including the U.S. and Canada, has deteriorated,” stated Atradius Chief Market Officer Andreas Tesch in an announcement for the report. “Regardless of the underlying reasons for this, the challenges posed by a difficult insolvency environment require that businesses report to sound trade receivables management strategies enabling them to grow safely.”

PYMNTS breaks down the findings, including the instance of late payments and the causes behind the trend.

A Nearly Universal Problem

Economies across the Americas differ widely. But late B2B payments seem to not discriminate between strong and weak markets. All countries surveyed in the Americas report revealed upward pressure on insolvencies, Atradius found. For domestic B2B trade, 47.1 percent of the total value of those deals was paid late, up 1 percent from last year. Foreign deals fared even worse, with 49.6 percent of the total value being paid late.

Both figures are above the rates of late payments seen in Europe, Atradius noted, “indicating that businesses in the Americas are notably more exposed to payment risk arising from B2B trade than businesses in Europe are.”

But it’s the suppliers in Mexico, researchers concluded, that are hit the hardest by late payments. More than half of all domestic trade here is paid past an invoice’s due date, and the nation holds the longest average payment terms in the Americas, at 44 days.

Brazil and Canada appear to be on a similar path, however, each with a nearly 3 percent increase in the value of domestic B2B payments being paid late. Interestingly, while, across the board, foreign B2B payments are also increasingly being paid late, in Brazil, the instance of late payments for foreign deals declined.

When it comes to the U.S., trading businesses fare a bit better than their counterparts elsewhere in the Americas. The nation holds the shortest average payment term length at 20 days. “This points to the U.S. suppliers’ strong focus on protecting their businesses from the adverse impact of customers’ late payment on cash flow and profits,” the report stated. Meanwhile, Canadian businesses make payments the fastest only after their payments are past-due.

Who (Or What) Is At Fault?

The motivation behind paying a B2B invoice being late varies widely, according to the report. Low commodity prices are leading to an increase in insolvencies in both Canada and the U.S., while the U.S. is also facing pressure from a decline in demand for exports. Depressed oil prices in Mexico and the economic recession in Brazil are also making their mark on business B2B payment habits, researchers found.

The number of businesses trading on credit terms has declined (from 45 percent last year to 43 percent this year). And while Atradius researchers noted that trading on cash can mitigate some risk of payment default, it can also mean businesses lose sales and market share to their rivals who do offer sale on credit.

In the year ahead, businesses in the Americas are deploying different tactics to protect themselves against late payments. Forty percent of the companies surveyed said they plan to request secured forms of payments and run credit checks and payment history reviews on their B2B customers.

Liquidity constraints are the number one cause behind late payments, the businesses surveyed said, with 44.4 percent of respondents citing this factor behind the delayed payments from their corporate customers. Nearly a third of companies also cited liquidity constraints as the top factor behind late payments in foreign transactions. But for both domestic and foreign deals, the frequency of citing liquidity constraints as the reason behind late payments has dropped compared to last year.

This year, fewer businesses said they believe the payments made late by their corporate customers are intentional, with less than a third suggesting this may be the case in domestic trade deals.

For foreign transactions, Atradius said, delayed payments often appear to be “due to reasons unrelated to their creditworthiness and beyond their control,” like the complexity of payment processes and friction within the banking system.

With companies exploring how to protect themselves against late payments, Atradius’ report suggests that, with so many companies unintendedly paying late — and sometimes without the ability to correct it — B2B sellers need to take external measures to manage their cash flow, which researchers found as companies’ top concern this year.