US: trade credit use on the rise amid economic distress

Introduction

This year’s survey results the pandemic highlight that US businesses adopted a more proactive approach to new business development in the year following the outbreak of the pandemic. US businesses offered substantially more trade credit to potential B2B customers than their peers in the USMCA region. This more liberal use of trade credit to support sales amid the pandemic-indices economic distress may explain why they have also faced more late payments and write-offs than their peers in Mexico and Canada.

The Atradius Payment Practices Barometer provides us with the valuable opportunity to  hear directly from businesses how they are coping with changed trading and economic  circumstances caused by the pandemic. The survey questionnaire was completed by  businesses in the US during Q2 2021, a full year after the World Health Organisation declared Covid-19 a global pandemic.

Key takeaways from the report

Our survey in the US highlights that a significant number (40%) of the businesses we spoke to in the US told us they offered trade credit to win new customers in the year following the outbreak of the pandemic. Increased trading on credit with B2B customers, particularly during times of economic distress, led to increased trade debt management costs. These were seen more frequently among businesses that chose to manage credit risks in-house, compared to businesses that outsourced to specialists.

With 52% of the total value of B2B sales of the industries surveyed in the US transacted on credit, costs associated with the provision of trade credit need to be carefully managed. If
this is not done, costs could easily jeopardise the profitability of the business, especially if profit margins are tight.

This may explain why the business environment in the US appears to be very receptive to stretegic credit management. A quarter of the businesses we polled told us they intend to use trade  credit insurance during the coming months. In addition to offering peace of mind that their accounts receivables are safe in the event of a bad debt, credit insurance can offer them understanding of their markets and their customers and may give them the information and security they need to explore new markets or develop relationships with new customers.

Key survey findings for the US

• 51% of the businesses polled in the US reported an increase (37% no change and 12% a decrease) in the use of trade credit in the months following the outbreak of the
  pandemic.
• Trading on credit was chiefly aimed at winning new B2B customers during the pandemic.
• More businesses in the US (55%) than in Canada (48%) and Mexico (37%) reported an increase in administrative costs associated with managing accounts receivable in the following the outbreak of the pandemic. This was most often seen with businesses that self-insure credit risk.
• Businesses in the US faced greater customer credit risk and were harder hit by late and non-payment of invoices than their peers in the region.
• Looking ahead, interestingly a potential resurgence in geopolitical tensions affecting international trade is at the bottom of the list of US business concerns. The same is true for respondents in Canada and Mexico and may reflect a belief across the region that geopolitical stability is increasing.

Interested in getting to know more?

For a complete overview of the payment practices in the US and in the local agri-food,  ICT/electronics and steel/metals industries, please download the complete report.