Securing growth: Mitigating credit risks in today’s uncertain trade landscape
In today’s volatile business environment, companies face challenges from trade and tariff uncertainties that can disrupt business operations, supply chains, and strategic planning. These risks can threaten financial stability through issues such as late payments, customer defaults, difficulties in rolling over debt, and tight cash flow. To navigate these risks and seize growth opportunities, business must adopt effective risk mitigation strategies, including trade credit insurance, which offers protection and peace of mind across industries and company sizes.
How today’s global trade landscape impacts credit risks
Slower economic growth, high energy prices, rising insolvencies, and persistent inflation have heightened the risk of delayed or non-payment for goods and services. The flow of goods and services is also influenced by political events — such as civil wars, sanctions, or government interference — that further complicate the flow of trade and payments. Additionally, the climate crisis and supply chain disruptions can also affect a company’s financial health, potentially leaving them unable to meet their obligations.
Credit risks may include:
- Default risk: The risk that a borrower cannot meet payment obligations.
- Counterparty risk: The risk that a trading partner fails to fulfil contractual obligations.
- Liquidity risk: The possibility that a company lacks sufficient liquid assets to meet short-term financial obligations or sell assets without loss.
To mitigate these risks, businesses should maintain up-to-date credit management systems, negotiate clear payment terms, and consider using trade credit insurance to protect against client payment delays or defaults.
Promoting growth in volatile times
Given this backdrop, it’s no surprise that businesses are increasingly investing in trade credit insurance for greater security and safety. Globally, it covers approximately US$9.5 trillion in trade transactions each year, enabling companies to offer more competitive credit terms, explore new markets, and expand their customer base with confidence.
Beyond protection, trade credit insurance can improve access to financing by reducing lender risk and enhancing working capital by safeguarding income streams — particularly valuable in sectors like energy and critical minerals, where long-term purchase agreements often rely heavily on credit insurance.
Creating supply chain resilience
Trade credit insurance can also enhance supply chain resilience by covering agreements and transactions with suppliers and protecting against financial losses when customers fail to pay.
Effective supply chain management includes:
- Mapping both direct and indirect suppliers and quantifying disruption and concentration risks in the supply chain.
- Regularly conduct due diligence on companies within the supply chain to ensure they are legitimate, financially healthy, and resilient, while conducting thorough due diligence with potential new suppliers.
- Seeking supply chain diversification and flexibility within and across geographies.
- Fostering relationships with suppliers and customers to uncover new business opportunities.
Understanding and mitigating these risks is important for organizations aiming to unlock trade credit’s potential in their supply chain. Marsh McLennan’s SentriskTM is a powerful AI-powered tool that helps companies gain deeper insights into their supply chain risk exposure, enabling more effective planning and implementation of mitigation strategies, including relevant insurance programs, such as trade credit insurance.
Furthermore, now companies can use Sentrisk’s Tariff Simulator to help manage credit risk implications arising from tariffs. Traditional risk models, which rely on historical data, often don’t capture the rapid market shifts caused by evolving trade policies, leaving companies and lenders potentially exposed to unforeseen credit risks. Sentrisk’s Tariff Simulator can address this gap by integrating real-time data, industry stress tests, and forward-looking indicators. This enables firms to proactively reassess exposures, quantify potential losses, and make informed decisions.
Partnering for success
Building and maintaining a successful business in today’s challenging economic environment requires proven solutions as well as trusted advisors. With a global network of trade credit specialists and risk consulting colleagues, Marsh can help companies obtain competitive and cost-effective insurance to mitigate credit risks and more. Please reach out to your local Marsh representative to find out more.
