The current environment of geopolitical conflict, policy volatility, inflationary pressure, supply chain fragmentation and shifting consumer dynamics has created a perfect storm of unpredictability. If an organization is engaged in domestic and international trade, it faces elevated levels of credit risk and may be doing so without the tools or strategies needed to weather the turbulence.
Trade-exposed businesses must navigate an increasingly unstable landscape. If a business extends credit terms to customers, it is vulnerable to the risk that those customers may not pay, whether due to financial strain, insolvency or cascading macroeconomic shocks. As risk factors multiply in the current operating environment, traditional safeguards may no longer be sufficient.
Mounting Pressure on Multiple Fronts
- Tariff Uncertainty: Recent years demonstrate how quickly and arbitrarily trade policies can change. Tariffs can be imposed, escalated or repealed with little warning, fundamentally altering the economics of cross-border transactions. People may assume that a return to the norm will eventually prevail. However, there is still much uncertainty and risk models cannot be built on wishful thinking.
- Geopolitical Tensions: Geopolitical conflict directly affects trade flows, shipping lanes, export controls and supply chain sourcing. There is very real potential for escalation or surprise action.
- Recession Ambiguity: With inflation still elevated and several years of interest rate volatility, many industries remain on edge. And yet, economic data paints a murky picture. Are we post-recession, mid-downturn, or simply rebalancing? This uncertainty complicates forecasting and amplifies credit exposure.
These macro-level shifts combine in ways that make it hard to forecast risk. While many focus on external disruptions, a more immediate threat lies within balance sheets.
The Impact of Trade Credit Risk
In today’s unstable economic environment, companies that extend credit to buyers, either domestically or abroad, face the critical risk of non-payment. This non-payment can occur in two primary ways: protracted default or insolvency. In a case of protracted default, a buyer delays payment far beyond agreed-upon terms, often due to cash-flow issues. In an insolvency case, the buyer declares bankruptcy and is legally unable to fulfill obligations.
Both scenarios force companies to absorb unrecoverable revenue, manage growing unpaid invoices, and confront downstream impacts on liquidity and business continuity. The effect is especially severe for small and mid-sized enterprises, which often rely heavily on a handful of key customers. Despite the magnitude of the risk, many of these businesses continue to operate without trade credit insurance, internal credit teams, or even a formal credit risk strategy. In an era where volatility is the norm, this is a significant blind spot.
The Hidden Value of Credit Risk Management
- Support growth by allowing businesses to extend competitive credit terms with confidence
- Improve liquidity by increasing the amount a company can borrow based on its outstanding invoices
- Build resilience by offering protection against defaults and insolvencies
- Provide risk intelligence such as insights into buyer health, market volatility and portfolio concentration
Credit risk is a frontline concern as businesses expand into new geographies, enter new sectors or scale faster than internal controls can manage. Addressing it requires a more collaborative, data-driven and responsive approach than traditional underwriting allows.
Strengthening Credit Risk Defenses
Even if your company does not yet have trade credit insurance, there are steps you can take to improve resilience. Here are a few baseline practices every trade-exposed business should adopt in this environment:
- Increase buyer visibility: Do not rely solely on historical payment behavior. Request updated financials, conduct periodic health checks, and remain aware of any geopolitical or supply chain pressures your customers may be facing.
- Diversify customer concentration: You are especially vulnerable if one or two buyers represent most of your receivables. Consider adjusting terms or seeking out new markets to reduce dependency.
- Tighten internal credit controls: Revisit your payment terms, follow up on late payments early, and train your accounts receivable (AR) teams to spot red flags before they turn into defaults.
- Assess exposure by geography and industry: Are you heavily tied to volatile regions or sectors? Are there early indicators like currency stress, sanctions risk or commodity swings that could impact your customers?
Credit Discipline as a Competitive Advantage
To best manage risk in today’s environment, organizations should consider rethinking how they view credit. In uncertain times, companies often pull back by delaying investments, cutting costs and reducing risk exposure. But when done strategically, trade credit management helps you avoid the trap of false confidence in business-as-usual practices.
As economic headwinds persist, credit discipline defines which companies can seize opportunities while others retreat. Those that treat trade credit as a managed risk rather than a background function will be best positioned to navigate the next wave of global uncertainty.