Canada: business alert to B2B customer payment default

Introduction

The 2022 edition of the Atradius Payment Practices Barometer survey findings for Canada is a valuable opportunity to hear directly from companies about how their business operations are coping with the disruptive impact of the current challenging economic and trading circumstances.

Topics covered include: payment terms set for business-to-business (B2B) customers, the average time it takes to turn overdue B2B invoices into cash, the impact of late or non-payment on the business, and expected challenges to profitability during the coming months.

The survey questionnaire was completed by businesses in Canada during Q2 2022. Responses given by companies polled are contained in the report for Canada, which is part of the June 2022 edition of Atradius Payment Practices Barometer for the USMCA: soaring inflation prompts liquidity protection

Key takeaways from the report for Canada

Business alert to dangers of B2B customer payment default

• Companies in Canada reported adopting more stringent trade credit policies to protect themselves against the danger of B2B customer payment defaults. This resulted in the level of bad debts written off as uncollectable remaining stable in the period of the survey as businesses dedicated additional time and resources to chasing unpaid trade debt. It also accounted for there being an average of 36 days wait between invoicing and customers settling payment.
• Where late payments occurred in the Canada market, it was most often attributed to B2B customers delaying payments to their own suppliers to preserve liquidity. Businesses reported that this had the potential for knock-on effect troubles down the supply chain and prompted them to use a range of measures to insulate against unexpected credit losses. These included making more regular customer credit checks, offering discounts for early payment of invoices, and avoiding credit risk concentration. DSO was stable for most companies

Companies seek credit insurance benefits amid positive outlook

• The need for strong strategic credit risk management is a high priority in the Canadian market. A clear majority of companies reported that they either outsourced the issue to a credit insurer or purchased specific trade finance solutions. The benefits of choosing to use credit insurance included gaining access to extra services like debt collection and regular market intelligence. It was also reported to help improve DSO and free up working capital.
• There was a positive outlook looking to the future among businesses in Canada, who expect to see an improvement in payment practices in the year ahead and a strong expansion in trading on credit to drive business growth. The main concern going ahead is about fears of DSO deterioration that could squeeze liquidity. Other worries for business polled in the market include coping with disruption to the economy caused by the pandemic, maintaining adequate cash flow and also keeping pace with a rising demand for products and services.

Key survey findings for Canada

• B2B trading on credit remains widespread, chiefly to grow sales
• Flexible approach to B2B payment terms amid concern over customer credit risk worsening
• Increased alertness to customer credit risk, however bad debt write-offs hold steady
• B2B customers delay payments intentionally to protect their own liquidity
• Companies focus on enhancing their credit management process
• Businesses look ahead with optimism, focus on sales expansion
• DSO worsening expected amid concern about coping with extra demand

Interested in finding out more?

Please download the complete report for a complete overview of the payment practices in Canada and in the following local industries:

• Chemicals/Pharma
• Steel/Metals
• Services