COVID-19: Reevaluating Risk & Credit Terms in International Trade

 In Industry Insider, Industry News

The global COVID-19 pandemic has and continues to influence the cash flow of companies and countries all around the world. The national debt in many countries has been severely impacted, and most have recently had their credit risk ratings (also known as “Sovereign Ratings”) reduced by the Big Three global credit rating companies, namely Moody’s, S&P Global, and Fitch Group.

The financial influence of COVID-19 will almost certainly impact your company, including how you weigh credit risk when negotiating payment terms and extending credit for your international trade lanes. According to the International Chamber of Commerce, an increase in the demand for trade finance products is anticipated due to the financial and geopolitical uncertainties created by the COVID-19 pandemic. Industry data from past global financial crises illustrates that the use of trade finance products by businesses tends to increase proportionate to perceived commercial risks.

The factor weighing most heavily on the decision to extend credit terms to an international buyer revolves around the risk rating of the buyer’s country. Unfortunately, in international trade we cannot simply run a Dun & Bradstreet report to help make our credit decision. A country’s credit risk rating is determined from a wide range of factors, the most critical of which being per capita income, GDP growth, inflation, debt, history of default, and economic development.

There is so much at stake, especially now, for companies engaged in International Trade. Many companies have begun reevaluating their accounts to determine if credit terms need to change, and decisions I am sure are being made now with much more reserve than pre-pandemic times, in order to mitigate any sort of risk. For example, customers in countries which we standardly allow for open payment terms must be reassessed as slow-to-pay open term accounts could become even slower to pay. Can your company take the hit given the current cash flow conditions?

There are alternative methods of payment that can assist in mitigating risk during these trying times; Letters of credit, Documentary Collections, and Cash Against Documents are just a few of the Trade finance options available. Our experts are ready to guide you in choosing the payment method that works best for your company during these difficult financial times.

Get in touch with our trade finance specialists today at tradefinance@tbgfs.com or 1-800-493-9444

 

About the Author:

Kate Klein

Kate Klein oversees the Trade Finance department at Trans-Border and has 13 years of experience in international trade finance. In her role managing Trans-Border’s Trade Finance team, Kate helps our clients get paid on time and within compliance for their international business. From letters of credit to contract reviews, Kate and her team assist our clients with navigating the complex world of international trade finance. Read full bio →

Contact Kate at kklein@tbgfs.com or (800) 493-9444.