As inflation soars higher, increasing pressure on their liquidity and borrowing power, USMCA companies are tightening credit risk management to protect their profitability in the coming months
AMSTERDAM, July 6, 2022 /PRNewswire/ — The impact of the alarming spike in inflation on businesses, and the resulting need to take steps to protect their profitability and viability, is at the heart of the findings of the latest Payment Practices Barometer survey conducted by the global credit insurer Atradius to companies in the Canada, Mexico and United States (USMCA).
Several factors, such as the sharp rise in energy prices and the severe instability caused by geopolitical unrest, have pushed the global inflation figure to a level not seen in decades. This has caused immense concern for businesses around the world, fearing that it will increase the risk that B2B customers will not pay their bills. This should pose a significant threat to profitability and, in the worst case, a danger of being pushed completely into bankruptcy.
The Atradius Payment Practices Barometer survey shows that companies in the USMCA region have responded to this concern by significantly improving their management of credit risk arising from credit transactions with their B2B customers. USMCA firms that have chosen to handle the problem internally told us that the primary method used was to perform more regular credit checks on customers to detect any early warning signs of a likely default. This was reported by 53% of USMCA companies, rising to 61% in Mexico. Respondents also told us that they very often try to speed up cash flow by offering B2B customers discounts for early payment of invoices, or giving customers a shorter time to settle payments for purchases at credit to customers. This was particularly noted both in Canada and Mexico.
However, with interest rates rising due to inflation, the powerful motivation for USMCA companies was also to have easier access to external financing in case they needed to cover possible cash shortages due in default of payment by customers. A clear finding from the survey is that USMCA companies have understood the relevance of strategic credit management to navigate the current period of soaring inflation, which could increase customer credit risk. In particular, two out of five companies surveyed in the USMCA region recognized the value of credit insurance as a tool to strengthen their borrowing power. This is due to increased bank security from the transfer of the risk of non-payment of their B2B buyers to a specialized credit insurance company.
Gordon CessfordAtradius Regional Manager for North Americasaid: “While inflationary pressures are widespread around the world, a strong upward push in the USMCA region figure is the result of ripple effects from soaring energy prices and commodities globally We find that USMCA companies are struggling to ease this pressure, increasing their need for cash to manage business operations and driving up costs For many companies, strategic credit management has represented the most logical step to protect earnings and cash flow, while mitigating customer credit risk during this period of dramatically soaring inflation and unstable economic conditions.”
The Atradius Payment Practices Barometer survey found that 70% of US businesses that have already insured their B2B trade receivables said they would continue to rely on this tool over the next twelve months, and many said they would also complement it with other solutions like letters. securitization of receivables and trade receivables. The comparable figures were 67% in Mexico and 58% in Canada.
The USMCA 2022 Atradius Payment Practices Barometer was conducted in the United States, Mexico and Canada. The reports can be downloaded from the Atradius website at https://group.atradius.com (Publications) or at https://atradius.us (Publications).
About Atradius: Atradius is a global provider of credit insurance, surety and collection services, with a strategic presence in more than 50 countries. The credit insurance, surety and collection products offered by Atradius protect businesses around the world against the risks of default associated with the sale of goods and services on credit. Atradius is a member of Grupo Catalana Occidente (GCO.MC), one of the largest insurers in the Spain and one of the largest credit insurers in the world. You can find more information online at https://group.atradius.com