Insolvencies and late payments have risen significantly in the US, Canada, Mexico and Brazil, largely due to low commodity prices, according to a survey by trade credit insurer Atradius.
Based on interviews with 856 corporate representatives, Atradius concludes that in the past year, insolvencies have grown in all four countries, but particularly in the US (3%) and Canada (4%). Additionally, 91% of respondents report payment delays from foreign customers, compared to 84% in Europe, and 40% report having to delay payment to their own suppliers due to late payments from their customers.
“This increase is driven by low commodity prices,” the insurer says in a statement. “Low oil prices, slowdown in economic growth in the US and slow productivity growth in Mexico, and the recession in Brazil, are the primary reasons for the forecasts of rising bankruptcies in these countries. This challenging insolvency environment affects the way businesses protect themselves against payment risk by B2B customers.”
For example, the report finds that respondents in the Americas are notably less inclined to offer credit terms to their B2B customers, with 43% of sales value reported to be transacted on credit (down from 45% last year). There are, however, differences between countries: while the proportion of sales completed on credit hasn’t changed in the US (43%), it has increased in Canada (from 42% to 44%) and Brazil (43% to 45%), and dropped in Mexico (from 44% last year to 40% this year).
Atradius also notes a tendency to sell more on credit domestically than internationally, which may come from the perception that getting overseas customers to settle bills could be challenging.
In fact, the survey reveals that 49.6% of the total value of export sales made on credit in the Americas were paid late, compared to 47.1% domestically. The figure is much lower in Europe, with 38.9% of international invoices paid late.
Andreas Tesch, chief market officer of Atradius, says: “The outlook for insolvencies in the majority of the advanced markets, including the US and Canada, has deteriorated. Regardless of the underlying reasons for this, the challenges posed by a difficult insolvency environment require that businesses resort to sound trade receivables management strategies enabling them to grow safely.”
Read the full report here.