Over half of the value of B2B receivables more than 90 days overdue were written off as uncollectable by businesses in Brazil, Canada, Mexico and the United States (the Americas).
The September 2014 edition of the Atradius Payment Practices Barometer, a survey of B2B suppliers in Brazil, Canada, Mexico and the United States, found that, on average, 38.4% of the total value of survey respondents' B2B receivables were unpaid by the due date. 5.2% of the value of invoices extended more than 90 days overdue, and 2.7% - approximately 52% of the value of invoices 90 days past due - were written off as uncollectable. This compared to an average of 35% for Europe.
Survey respondents in the Americas maintain a strong focus on credit management. 81.5% of the respondents in the region reported employing credit management policies to mitigate B2B trade credit risks. Approximately 50% of the respondents check their buyers' creditworthiness, request secure forms of payment or do both. These actions can help reduce payment defaults, but as survey responses indicate, they cannot completely eliminate them and uncollectable receivables remain a significant issue.
The impact of unpaid invoices on a businesses' turnover or cash flow can be serious. Not only because non-payment by buyers costs a business time and money in respect to pursuing collection of debts, but also because bad debt reserves represent money that is unavailable for use in growing the business.
Replies to the survey highlight also that late payments led to a marked disparity between the average payment terms for the region (28 days) and the average Days Sales Outstanding (DSO) (48 days). A key credit management factor as this gap highlights the risk of non-payment large spreads between the two can present a real reason for concern. It underlies why nearly one third of the survey respondents said that maintaining sufficient cash flow this year has been the greatest challenge to their business' profitability.
David Huey, Regional Director of Atradius Trade Credit Insurance NAFTA commented: "The economy may be showing signs of recovery, but late payments, defaults, and business failures remain facts of life. The survey results simply underline the need for all businesses to be vigilant in their credit management and to protect cash flow and profitability against non-payment through instruments such as credit insurance.
This offers the most comprehensive protection against insolvency or payment default and can help reduce DSO, improve cash flow, and support more competitive payment terms."
