BABC Member Meridian Finance Group Highlights Trade Credit Risk Concentrations on the Rise
Suppliers in many industries are selling to fewer customers than they were six months ago. The COVID-19 pandemic and ensuing economic downturn have left a smaller number of companies standing, let alone in a position to keep placing orders. Even suppliers whose total revenues are growing may be doing business with not as many customers as before.
Customers who are still buying tend to be larger companies with the market share, critical mass, and financial flexibility to weather the storm. Naturally suppliers want to keep selling to their key customers, but these circumstances are concentrating credit risks. Exposures are being heightened further by large customers insisting on longer payment terms: 90 days is the new net 30.
In the past, suppliers may not have been concerned about a large customer’s ability to pay. When they were selling to a lot of different companies, accounts receivable from any individual customer may not have commanded much attention. But now a single customer or a few key buyers may make up a big chunk of a supplier’s cash flow, and that represents an existential risk.
No matter how creditworthy a large customer may appear to be, if they were to default it would put the supplier out of business.
