Under pressure: managing the extra stresses from trade credit demands

trade credit dun and bradstreet 

Businesses are struggling under surmounting challenges to transform operations and thrive in the current economic climate. Inflation and the cost-of-doing-business crisis are also worsening the situation – driving up prices and increasing the cost of goods and services. As a result, businesses are looking for more flexible trade credit arrangements to improve cash flow. 

 In turn, credit managers are seeing an increased volume in trade credit agreements. The global trade finance market is estimated to reach $90,212 million in 2030, compared to its value of $44,098 million in 2020. However, this is causing additional stresses on an area of business already under pressure. 

This all comes against the backdrop of rising insolvencies in the UK. The most recent data from the UK Insolvency Service shows the number of registered company insolvencies is 32.9% higher than the same period 12 months ago – which our data shows is the highest insolvency rate we’ve seen in a decade. 

 On top of this, our Global Trade Exchange Program reveals that more than 90% of businesses that fail, exhibit a slow-down in payment to their suppliers six months prior to failure.  

Effectively managing risk versus reward can be a delicate art form for credit managers. So, how can they walk within these constraints while managing the other demands of their role?

In this article we’re going to explore how technology can enable credit managers to identify customers who are within their risk appetite and how automation can open up a risk/value based approach to decision making.  

 What is trade credit and how does it affect credit managers? 

Put simply, trade credit is a business-to-business (B2B) agreement whereby one business (the customer) can purchase goods and services from another business (the supplier) without paying cash up front, and instead pay at a later agreed date. 

The advantages of trade credit for customers include accessibility for businesses unable to secure business loans, flexibility to adapt to changing market demands and seasonal variations, and the obvious cash flow advantages. 

For suppliers, the major benefits of offering trade credit are to win new customers, increase sales and retain customer loyalty. 

However, the rise in trade credit demands is putting increased pressure on credit managers and causing stress amongst finance teams. The situation is especially sensitive as credit managers need to ensure they’re making the right decisions. The risk from businesses who might be on the brink of insolvency increases, as well as existing customers who need to be managed closely. 

Technology can help to manage trade credit risk 

Credit managers still need to remain competitive in the current economic climate by balancing the risk vs reward. 

For example, there will be increased pressure to ensure any tightening is targeted to reduce the highest risk segments while ensuring profitable business is still accepted. All this need to be done at scale, with accuracy and consistency.  

And this is precisely where technology can be used to achieve this.  

Using data and advanced analytics to identify existing customers that are within their risk appetite, credit managers will be able to alleviate the cash flow challenges of their customers while maintaining their own bottom line and building customer loyalty. 

Also, by using automation tools to make low value decisions and complete tedious tasks, credit managers have more time to focus on higher value or potentially riskier decisions – alleviating some of the pressure on them.  

It’s clear the right technology and data can provide confidence when it comes to decision making and in turn relieve stress for credit managers. 

Get big-picture insight with global data at your fingertips: explore our D&B Global Trade Exchange Program – where stronger data informs better decision making. And why not see how D&B Finance Analytics can help you reduce risk in your organisation. If you would like to get started with a smaller number of International or European credit reports only, you can now also order them online.