Counterpartycredit risk is a constant and material exposure for companies trading acrossborders. Managing it effectively is no longer optional. For CFOs, it is a corediscipline tied directly to liquidity, resilience, and growth. This articleexamines the main forms of trade credit risk and the practical tools CFOs canuse to prevent, mitigate, and manage them when supplying or sourcing goodsinternationally.

Why trade credit risk sits at the centre of the CFO agenda

Internationaltrade is built on trust, but it runs on credit. Goods are shipped today,payments arrive weeks or months later, often across jurisdictions withdifferent legal systems, currencies, and business practices.

According tothe WorldTrade Organization, global merchandise trade exceeds USD 32 trillionannually. A significant share of this trade is settled on open-account terms.That means exporters routinely finance buyers by extending credit, oftenwithout collateral.

The scale ofthe risk is not theoretical. Data from leading credit insurers shows that in2024, over 50 percent of B2B invoices globally were paid late. In Asia-Pacific,payment delays exceeding 60 days affected roughly 40 percent of companies. Baddebt losses ranged between 2 and 6 percent of annual turnover depending onregion and sector.

For an SME CFO,these figures translate into concrete threats:

• Liquidity gaps that strain working capital
• Higher borrowing needs and financing costs
• Increased earnings volatility
• Reduced capacity to invest or grow

Trade creditrisk, unmanaged, compounds quickly. Managed well, it becomes a controlledvariable rather than a destabilising force.

Understanding trade credit risk in all its dimensions

Trade creditrisk is often treated narrowly as the risk of non-payment. In reality, it ismulti-layered. CFOs should frame it across four distinct but interrelateddimensions.

1. Counterparty default risk

This is themost visible risk. The buyer fails to pay, either due to insolvency, financialdistress, or outright default.

Key driversinclude:

• Weak buyer balance sheets or cash flow mismatches
• Over-reliance on leverage
• Exposure to cyclical or volatile end-markets
• Poor governance or opaque financial reporting

Cross-bordertransactions amplify this risk because access to reliable financial informationis often limited.

2. Payment delay risk

Late payment isnot the same as default, but its impact can be just as damaging for SMEs.

Extendedpayment cycles:

• Tie up cash in receivables
• Increase reliance on overdrafts or short-term     borrowing
• Create knock-on effects across the supply chain

According tostudies by the International Chamber of Commerce, late payments remain theprimary cause of liquidity stress for SMEs engaged in international trade.

3. Country and political risk

Even when abuyer is creditworthy, external factors can disrupt payment.

These include:

• Capital controls or FX transfer restrictions
• Sanctions or trade restrictions
• Political instability or conflict
• Sudden regulatory changes

Country risk isoften underestimated until it materialises. For CFOs, ignoring it is notprudence. It is exposure by default.

4. Currency and settlement risk

Trade creditrisk is closely linked to FX risk. A buyer may pay, but currency depreciation,settlement delays, or banking disruptions can erode the real value or timing ofcash inflows.

For SMEsoperating with thin margins, this can turn a profitable transaction into aloss.

Why traditional controls are no longer sufficient

Many CFOs relyon a familiar toolkit:

• Internal credit limits
• Advance payments for new buyers
• Letters of credit for high-risk markets
• Manual credit reviews

These tools remainuseful, but they are increasingly insufficient on their own.

Letters ofcredit, for example, are costly, slow, and operationally heavy. Banks haveretrenched from SME trade financedue to capital and compliance constraints, a trend well documented by the Bankfor International Settlements.

Internal creditmanagement teams often lack real-time data, especially on overseas buyers. Bythe time financial stress is visible, it is usually too late.

The result is awidening gap between the risk CFOs face and the tools traditionally availableto manage it.

A modern framework for managing trade credit risk

Effective tradecredit risk management today requires a layered approach. CFOs should think interms of prevention, protection, and liquidity optimisation.

1. Prevention: Know your counterparty

Preventionstarts before the first shipment leaves the warehouse.

Best practicesinclude:

• Systematic counterparty due diligence using external     credit data
• Continuous monitoring rather than one-off assessments
• Scenario analysis based on sector and country     exposure

Modern creditintelligence platforms combine financial statements, payment behaviour,macroeconomic indicators, and sector trends. This allows CFOs to adjust creditterms dynamically rather than reactively.

2. Protection: Transfer risk where possible

Risk does notalways need to sit on the balance sheet.

Key toolsinclude:

• Trade credit insurance to protect against buyer     default and political risk
• Structured trade finance solutions that shift credit     exposure
• Contractual protections aligned with governing law     and jurisdiction

Creditinsurance, in particular, remains underused among SMEs despite covering up to90 percent of insured receivables in many markets.

3. Liquidity optimisation: Turn receivables into cash

Evenwell-managed credit exposure creates a timing gap between shipment and payment.

This is wherereceivables finance becomes strategic rather than tactical.

Optionsinclude:

• Non-recourse     invoice factoring to eliminate buyer credit risk and accelerate     cash flow
• Reverse     factoring to stabilise supplier relationships

Unliketraditional bank lending, these solutions are linked to the quality of thereceivable rather than the balance sheet of the exporter.

For CFOs, thisdistinction matters. Financing tied to trade flows is often off-balance-sheetand scales with growth rather than constraining it.

Accounting and balance sheet implications CFOs must consider

Trade creditrisk management is not only about risk. It has direct accounting consequences.

Keyconsiderations include:

• IFRS 9 expected credit loss provisions on trade     receivables
• Impact of bad debts on EBITDA and net profit
• Working capital ratios and cash conversion cycles
• Covenant headroom with lenders

Non-recoursesolutions can reduce receivables exposure and volatility in expected creditloss provisions. This improves earnings quality and balance sheetpredictability, a point often overlooked outside finance teams.

Sector and geography matter more than ever

Risk is notevenly distributed.

Recent datashows elevated stress in:

• Construction and materials
• Consumer discretionary goods
• Export-driven manufacturing in emerging markets

At the sametime, geopolitical fragmentation has increased country-specific risk premiums.CFOs should avoid treating international markets as homogeneous. Credit termsthat work in Western Europe may be inappropriate in Southeast Asia or parts ofAfrica.

Granularity isnot complexity. It is discipline.

The strategic role of the CFO in trade risk governance

Ultimately,trade credit risk is not a back-office issue. It is a strategic governancequestion.

Leading CFOs:

• Integrate credit risk into pricing decisions
• Align sales incentives with payment discipline
• Use data to arbitrate between growth and risk
• Treat liquidity as a strategic asset, not a     constraint

This requiresclose coordination between finance, sales, and operations. It also requiresmoving beyond static policies toward adaptive frameworks.

A closing perspective for CFOs

Internationaltrade will remain credit-driven. Payment terms will lengthen before theyshorten. Volatility will persist across currencies, markets, andcounterparties.

For CFOs, theobjective is not to eliminate trade credit risk. That would mean stopping tradealtogether. The objective is to measure it accurately, price it correctly, andmanage it actively.

Companies thatdo this well gain more than protection. They gain optionality. They can enternew markets with confidence, negotiate better terms, and grow without puttingtheir balance sheet at risk.

Trade creditrisk is real. Managing it is not just about survival. It is about building aresilient platform for sustainable growth.

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