Mexico: doubling of write-offs, deep economic stress?

Introduction

The economic outlook for Mexico is expected to deteriorate steeply this year, due to the severe economic contraction caused by the pandemic downturn. The level and intensity of
the contraction is still to be seen as the pandemic continues, making it difficult to pin down predictions over the ultimate impact on the economic system.

However, what we  have seen is that the pandemic has exacerbated financial conditions in the second quarter, negatively impacting Mexican SMEs in particular. The current economic downturn will aggravate the situation for many businesses in a wide range of industries, weakening the financial strength of many and triggering an increase in payment delays and defaults in the coming months.

Key takeaways from the report

• Late payments are a common feature of B2B trade
• The amount of outstanding debt written off doubles year-on-year
• Despite late payments and economic contraction business morale is strong
• Mexican businesses increase their use of trade credit
• A significant proportion of businesses in Mexico employ credit insurance

Key survey findings for Mexico

The Atradius Payment Practices Barometer survey conducted in Mexico found that the total value of B2B sales made on credit increased to 52%, up from 45% last year. The increased use of B2B trade credit could be a reflection of the higher pressure on  businesses to sell and grow market share to offset the squeeze on profits in these challenging economic times.

Furthermore, as the largest proportion of the credit-based B2B sales (62%) was transacted chiefly on the domestic rather than on foreign markets, it is reasonable to infer that many businesses in Mexico resorted to domestic supplier credit to fill a gap in short-term trade financing during these times of liquidity constraints.

Based on the survey findings, the average B2B payment terms in Mexico remained stable at 27 days from invoicing. Payment terms are most often set in line with company standards, as reported by 42% of the survey respondents, while for 40%, payment terms are set according to the credit capacity of the customer.

Interested in getting to know more?

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

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