It shouldn’t come as a surprise that money is tight at firms across the US and around the world—after nearly three months of lockdowns, business has slowed as many fight to bring in enough money to pay employees, suppliers, and the like. Understandably, it was well known that payments would be slower as businesses struggled to bring in money, but a recent report showed just how impactful the coronavirus lockdowns have been on payments.

Atradius Report Underlines the Impact of Lockdowns on Payments

A recent report from trade credit insurance, surety and debt collection services provider Atradius shared just how hard-hit businesses across the United States, Mexico and Canada are. According to the annual Atradius report titled USMCA Payment Practices Barometer, 43% of the total value of invoices issued were unpaid by the due date.

But not all is lost. Despite economic pressures, business confidence remains high in the US, with 52% of respondents expecting an improvement and many banks still providing continued funding for clients.

“The results of the Atradius Payment Practices Barometer survey of U.S. firms show a business environment strained by cash flow and liquidity issues. Many factors are at play, most notably the economic downturn caused by the COVID-19 pandemic, which has led to decreased consumer spending and industrial production and increased unemployment and corporate debt.

The pressure U.S. businesses are feeling is reflected by widespread deteriorating B2B customer credit risk. Invoice payment defaults are up significantly compared to last year, as is the number of businesses delaying payment to suppliers awaiting outstanding payments. This is true of all sectors, but particularly for the chemicals and agrifood industries. Still, U.S. businesses – most notably the ICT/electronic sector – remain optimistic, predicting growth in sales and profit over the coming year.”

Key Takeaways: What Can You Expect for the Rest of the Year?

In addition to studying leaders on payments trends and expectations, the report goes on to discuss some of the key trends to watch and takeaways for businesses reading the report. Among those takeaways:

  • Credit Going to Domestic Customers: Noting an uptick in credit sales throughout the USMCA, Atradius notes that the total value of credit sales reached 56%. These credit sales were driven by businesses in Canada (63%, up from 57% last year) and Mexico (52%, up from 45% last year), while businesses in the US have actually seen a decrease in credit sales, 53% of sales were credit, a slight decrease from 55% last year.
  • Late Payments Becoming an Issue for Suppliers: As the survey was completed during the COVID-19 lockdowns, this is one of the first to offer insights on how heavily impacted businesses were throughout. According to the survey, late payments affect 43% of the total value of invoices issued in USMCA (up from 25% last year). Added to this, long overdue invoice totals have doubled to 13%, meaning that a healthy portion of invoices are exceeding 90 days overdue.
  • The Big Causes of Payment Delays: According to the survey respondents, business customers often use invoice payment delays as a form of short-term financing. Paired with invoice disputes, many customers are using this as a way to buy time. Customer liquidity shortages are cited as the reason for late payments by 36% of respondents in the region, including 43% in Mexico, 35% in the US and 30% in Canada.
  • Companies Spending More Time Chasing Down Late Invoices: An annoyance, 30% of businesses in the region report needing to increase the amount of time, resources and costs spent to chase overdue invoices.
  • Late Payments Cause Late Payments: Unfortunately, late payments cause a chain reaction, as many businesses acknowledge needing to delay settlement of invoices to their own suppliers. In turn, many businesses are choosing to self-insure against the risk of payment default than last year (66%, up from 22% last year). Similar increases can be seen in requests for payment guarantees (64% of respondents at regional level, up from 27% last year).
  • Optimism Abounds: Looking ahead, businesses are generally optimistic with 52% anticipating an improvement in payment practices over the coming months. Additionally, business morale appears buoyant with the majority of the region’s survey respondents anticipating an increase in the availability of bank credit and an improvement in sales and profits.

See the entire survey results for the entire region—as well as the United States, Canada, and Mexico from Atradius and learn more about speeding up receivables from our recent blog.

Keep the Ship Upright: Controller’s Council is Here to Help

In times of crisis, it’s the controller’s time to shine. Your company will lean heavily on you for the steady hand and leadership they need to get them through this complicated time. From advice on managing cash flow to best practices on running the finance department, we’re here to help.

Join the Controllers Council today for all the latest resources and networking opportunities on improving business operations and positioning yourself for success.

Additional COVID-19 Resources for Controllers

How Automation Can Solve Your Reconciliation ChallengesWebinar Tuesday, October 19

According to The Hackett Group, accountants and financial personnel spend 65% of their time on manual, low-value processes. These processes include reconciliations, meaning accountants are likely to be focusing the bulk of their time on repetitive tasks as they complete the period-end close. The challenges that come from spreadsheets and other manual methods of reconciliations don’t have to impact your entire organization; financial automation solutions can pave the way for many benefits and opportunities to maximize your accountants’ time and effort.