Mexico: trade credit offered to cement trade relations

Introduction

As our survey results highlight, more than 80% of businesses told us that they   expected to see growth during the second half of 2021. This is substantially more than the proportion of businesses reporting the same in either the US or Canada. Although this level of optimism is higher than economic growth  forecasts might predict, it is interesting to note that the country with the highest usage of credit insurance also has the highest levels of optimism. This could be because a majority of businesses feel confident that their cash  flow is secure. It may also be because the credit insurance enables trade through enhanced levels of market knowledge and potential customer  assessments.

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 Mexico during Q2 2021, a full year after the World Health Organisation declared Covid-19 a global pandemic.

Key takeaways from the report

Twice as many businesses in Mexico reported an increase in the use of trade credit following the outbreak of the pandemic than those that reported no change (62% compared to 31%). Most businesses that offered credit favored  domestic over foreign customers and the majority provided credit in order to strengthen established customer relationships.

Offering credit to established customers is a good way of cementing strong relationships. It can help keep trade flowing during periods of poor liquidity, such as the trade interruptions seen during the pandemic, by providing access to short term finance.

In the USMCA, Mexico records the highest usage of credit insurance. Based on survey responses, the majority of businesses feel confident that with credit insurance their cash flow is secure. Credit insurance enables trade through enhanced levels of market knowledge and potential customer assessments.

Key survey findings for Mexico

•  53% of businesses reported they offered trade credit to encourage repeat business with established customers (US: 38%, Canada: 55%). 26% offered credit to win news customers (US: 40%, Canada: 23%).
•  52% of the total value of B2B sales in Mexico are sold on credit. In the year  following the outbreak of the pandemic, 40% of the businesses reported an increase in the cost of financing or interest paid during the time between the credit sale and payment. (reported by 37% in the US and 41% in Canada).
• 68% of respondents in Mexico actively employ credit insurance, compared to 53% in the US and 65% in Canada.
• Perhaps reflecting this, an average of 45% of all B2B invoices issued in Mexico are paid late. This is the lowest percentage in USMCA (US: 50%, Canada: 48%). 5% of long overdue invoices (more than 90 days overdue) were written off. This is in line with the average for Canada and lower than the 8% average for the US.
• Concerns about maintaining adequate cash flow over the coming months were expressed by 31% of businesses polled in Mexico, significantly more than the 16% in the US and 19% in Canada. 28% were concerned about the unpredictability of the pandemic (US: 18%, Canada 22%).
• 48% of businesses told us they expect credit sales to become an increasingly widespread business practice over the next 12 months (US: 36%, Canada: 18%). Many told us they expect this to be aimed at stimulating sales within industries where demand plunged due to the pandemic.

Interested in getting to know more?

For a complete overview of the payment practices in Mexico and in the local agri-food, chemicals/pharma and steel/metals industries, please download the complete report.