Trade credit allows businesses to buy goods or services upfront and pay later, typically within 30 to 90 days. This system helps buyers manage cash flow but places financial risks on suppliers. To reduce these risks, companies increasingly use trade credit insurance, which protects against buyer defaults, insolvency, and political disruptions.
Here are the seven industries leading the demand for trade credit:
- Manufacturing: High-value goods like machinery often involve long payment terms, exposing suppliers to risks like currency fluctuations and political instability.
- Energy & Commodities: Payment delays from concentrated buyers like state-owned enterprises create significant risks, especially during commodity price swings.
- Agriculture: Seasonal cash flow cycles and weather-related disruptions make trade credit essential for agribusinesses.
- Construction: Long project timelines and delayed payments drive reliance on supplier credit, especially in infrastructure projects.
- Retail & FMCG: Short credit cycles and fragmented buyer bases create challenges, especially with currency volatility.
- Technology: Extended payment terms in global supply chains increase exposure to financial and political risks.
- Healthcare: Long payment cycles from public hospitals and distributors elevate risks for pharmaceutical and medical suppliers.
Why It Matters: Trade credit is a critical financing tool, especially in emerging markets where bank loans are less accessible. Industries use trade credit insurance to protect cash flow, reduce risks, and secure better financing terms. By insuring receivables, businesses can confidently extend credit, expand into riskier markets, and maintain financial stability.
7 Industries Driving Trade Credit Demand: Key Risks and Payment Terms
1. Manufacturing and Industrial Goods
Accounts Receivable Exposure
In many emerging markets, manufacturers often have a significant portion of their current assets – sometimes as much as 40–70% – tied up in receivables. This is especially true for companies that ship high-value items like machinery, components, or capital equipment on credit. Payment terms for these transactions usually range from 30 to 120 days, but they can stretch even longer due to factors like tariff uncertainties, supply chain disruptions, or inventory stockpiling. The risk becomes more pronounced when a handful of large distributors or state-owned enterprises account for most of the outstanding invoices.
Sector-Specific Risks
Manufacturers in this sector face a unique set of challenges, including political instability, currency fluctuations, and limited financial transparency. Political instability can manifest in sudden trade restrictions, tariffs, sanctions, or regulatory shifts, all of which can delay or even block payments. Currency volatility adds another layer of complexity, particularly when contracts are priced in U.S. dollars while buyers generate revenue in local currencies that may experience sharp depreciation. Additionally, opaque financial structures, unclear ownership arrangements, and weak insolvency frameworks make it harder to assess creditworthiness and increase the risk of buyer defaults. These issues are especially critical in capital-intensive industries like automotive components, heavy machinery, chemicals, and construction materials.
Reliance on Trade Credit
When bank financing becomes scarce or prohibitively expensive, manufacturers often turn to open-account terms as a key source of working capital. This reliance grows during periods of monetary stress, as banks tighten lending standards. Suppliers, who usually have better visibility into their customers’ operations and payment behaviors through repeat transactions, are often better equipped than banks to manage credit risks. However, this dependence on trade credit underscores the importance of having effective credit risk management strategies in place.
Demand for Trade Credit Insurance Solutions
As risks increase, so does the demand for trade credit insurance. Manufacturers operating in volatile markets need protection not only against commercial non-payment – such as prolonged defaults or insolvency – but also against political risks like currency inconvertibility or expropriation that could prevent payments from being made. Insured receivables are often viewed as higher-quality collateral by lenders, which can improve access to working capital and secure better financing terms. Providers such as Accounts Receivable Insurance offer customized policies that combine risk assessment, policy design, and claims management. These solutions help manufacturers mitigate credit risks while supporting growth in challenging markets.
2. Energy, Commodities, and Natural Resources
Accounts Receivable Exposure
In the energy, commodities, and natural resources sectors, companies often deal with highly concentrated receivables. Picture a copper mining company in Chile or a crude oil exporter in Nigeria – these businesses might have tens of millions tied up in receivables from just a few international buyers. Payment terms can stretch from 30 to 180 days. When most of a company’s receivables are linked to a small group of large buyers – such as state-owned enterprises, major refiners, or trading houses – a single unpaid invoice can heavily impact working capital. For mid-sized producers and exporters, managing this concentration risk is essential to maintaining financial stability.
Sector-Specific Risks
The challenges don’t end there. Companies in this sector face unique risks that can disrupt payment flows. Issues like expropriation, sudden regulatory changes, sanctions, and civil unrest are common hurdles. On top of that, currency fluctuations add another layer of complexity. For instance, while sales are often priced in U.S. dollars, costs are typically incurred in local currencies, creating additional financial strain.
Dealing with state-owned entities or financially struggling trading partners also increases the risk of buyer defaults. And when commodity prices swing – like a sudden drop in oil prices – national oil companies may experience cash flow issues, leading to delayed payments or even defaults on trade credit extended by suppliers.
Reliance on Trade Credit
Given these challenges, many companies in the sector depend heavily on trade credit to keep operations running smoothly. Suppliers of equipment, services, and raw materials often extend credit to maintain relationships and secure long-term contracts. Global commodity trading houses frequently operate on open-account terms, creating a network of intercompany credit arrangements. During times of financial stress or commodity price shocks, this reliance on trade credit becomes even more critical. In some emerging markets, trade credit can account for as much as 20–25% of alternative financing for businesses.
Demand for Trade Credit Insurance Solutions
As risks rise, so does the demand for trade credit insurance. Businesses are increasingly seeking protection against commercial non-payment caused by insolvency or prolonged default. They’re also looking to safeguard against political risks like currency inconvertibility, government-imposed moratoriums, and expropriation that could block payments.
Multi-buyer credit insurance and single-risk policies tailored for large, strategic buyers are helping companies manage concentration risk. These solutions improve cash flow predictability and enable firms to secure better financing terms. For example, Accounts Receivable Insurance offers customized policies designed to cover receivables from national oil companies, mining operators, power utilities, and commodity traders. With the backing of a global network of credit insurance carriers, these policies address the complex, cross-border challenges businesses face in this sector.
3. Agriculture, Food, and Agribusiness
Accounts Receivable Exposure
The fragmented nature of agriculture and food supply chains in emerging markets creates notable challenges, particularly in managing accounts receivable. Many small-scale producers, processors, and distributors lack access to traditional bank financing, relying instead on supplier credit to bridge seasonal cash-flow gaps and finance essentials like seeds, fertilizer, feed, and packaging. Payment terms in this sector often stretch from 60 to 180 days, aligning with harvest or shipment cycles. This timing causes receivables to peak during planting and harvest seasons, concentrating financial risk around specific periods and regions. For example, a grain exporter might find substantial funds tied up in receivables from commodity traders and food manufacturers, alongside smaller, riskier receivables from less financially stable distributors.
Sector-Specific Risks
Agribusiness faces unique risks, starting with the volatility of commodity prices, which can quickly erode buyer margins – especially for those with unhedged positions or fixed-price contracts. Weather-related events and climate shocks further complicate matters by reducing yields and disrupting supply agreements. Currency fluctuations also play a significant role; for instance, when receivables are denominated in U.S. dollars but buyers generate income in local currencies, a sharp depreciation can make settling invoices more difficult. On top of this, political actions like export bans, sudden import restrictions, or price caps can disrupt contracts, leading to payment delays or defaults. These factors underscore the need for flexible credit arrangements tailored to the sector’s inherent volatility.
Reliance on Trade Credit
Exporters, millers, and food processors often negotiate extended open-account terms to align with their cash flow cycles. Suppliers agree to these terms to maintain long-term relationships and secure future business opportunities. In this way, trade credit becomes a shared risk mechanism, with upstream suppliers extending credit based on their understanding of buyers’ operations and seasonal conditions. For smallholders and cooperatives with limited collateral, trade credit often serves as the primary source of working capital. During periods of tight credit availability, reliance on trade credit grows even further. This dynamic highlights the importance of insurance solutions that address the specific risks faced by the agribusiness sector.
Demand for Trade Credit Insurance Solutions
Trade credit insurance offers a critical safety net for suppliers, protecting against non-payment due to insolvency, prolonged default, or political disruptions. These policies are designed to address the seasonal and regional risks unique to agribusiness, enabling companies to manage concentrated exposures while maintaining competitive terms with new or higher-risk buyers in emerging markets. Tools like Accounts Receivable Insurance help agribusinesses connect with insurers, craft policies that align with seasonal exposure patterns, and support claims and recoveries. By integrating insurance into broader credit and risk management strategies, agribusinesses can confidently navigate the challenges of their industry.
What is Trade Credit Insurance? | Credit Insurance explained in 5 minutes
4. Construction, Infrastructure, and Building Materials
The construction industry in emerging markets faces unique trade credit challenges, much like other sectors we’ve discussed.
Accounts Receivable Exposure
Construction and infrastructure firms often operate with slim profit margins and lengthy, milestone-driven project timelines. This setup creates significant receivable exposure and cash-flow challenges. Contractors, subcontractors, and suppliers of building materials frequently sell on open-account terms extending from 60 to over 120 days, particularly for large private developments or public infrastructure projects. Adding to the strain, retention payments – held back until project completion or after defect liability periods – can tie up substantial working capital. The multi-tiered subcontracting structure further complicates matters, as delays or defaults at one level can ripple through the entire network.
Sector-Specific Risks
Emerging markets bring additional layers of risk to the construction sector. Political shifts and regulatory changes, such as those occurring after elections, can lead to project cancellations, contract renegotiations, or delayed budget approvals, creating uncertainty. Currency volatility poses another challenge, especially when contracts or materials are priced in U.S. dollars while revenues are earned in local currencies, squeezing already thin margins and complicating payment schedules. Counterparty risk is also high, as many developers and municipalities lack robust financial backing. For instance, in India, rising housing demand and infrastructure investments are expected to drive growth in the cement sector, including mergers and acquisitions. However, for infrastructure like ports and logistics, downturns in trade or commodity prices can reduce revenues, impacting their ability to pay contractors and suppliers.
Reliance on Trade Credit or Open-Account Terms
When access to bank loans tightens during periods of monetary policy shifts, trade credit becomes a lifeline for the construction industry. Suppliers across the chain – whether dealing in cement, steel, aggregates, or other building materials – extend credit based on their deep understanding of client operations and market conditions. This informal credit system is especially crucial for financially strained construction firms, as subcontractors and material suppliers often act as de facto lenders, carrying receivables while waiting for project certifications or public budget releases.
Demand for Trade Credit Insurance Solutions
Trade credit insurance has become an essential tool for managing the risks inherent in the construction and building materials sector. It protects businesses from losses due to non-payment, buyer insolvency, or political disruptions that could derail projects. Increasingly, contractors and suppliers are leveraging trade credit insurance to secure bank financing by assigning insured receivables, all while adhering to strict risk management practices. Solutions like Accounts Receivable Insurance allow construction firms to protect their balance sheets from significant losses tied to individual buyers or projects. These policies can be tailored to address specific challenges, such as political instability in fragile markets, currency fluctuations in volatile economies, and financial uncertainties linked to mergers and acquisitions. By addressing these risks, trade credit insurance plays a critical role in maintaining working capital and ensuring the financial stability of companies operating in this demanding sector.
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5. Retail, Consumer Goods, and Fast-Moving Consumer Goods
The retail and fast-moving consumer goods (FMCG) sectors in emerging markets operate under a distinct credit model, which presents unique challenges in managing working capital.
Accounts Receivable Exposure
Retail and FMCG companies typically sell large volumes on short credit terms – ranging from 30 to 90 days – to an extensive network of wholesalers, distributors, and retail chains. This structure results in numerous small, unsecured receivables that require constant refinancing. With narrow profit margins and rapid inventory turnover, even a slight increase in overdue payments can strain cash flow, forcing businesses to explore costly financing options. On the other hand, traditional trade customers like small shops, kiosks, and informal retailers often operate on shorter credit terms with limited documentation, increasing the frequency of defaults and making risk management more difficult. These factors create a challenging environment for maintaining liquidity.
Sector-Specific Risks
The reliance on short credit cycles brings additional risks for retailers. Currency fluctuations can become a major issue, especially when goods are imported in U.S. dollars but revenues are earned in local currencies, reducing buyers’ ability to pay. Rapid changes in consumer demand can lead to overstocked inventory, while sudden regulatory shifts can disrupt cash flow. Competitive pressures often compel retailers to offer longer credit terms to secure shelf space or higher sales volumes, further complicating cash flow management. Weak legal enforcement in some markets exacerbates the risk of losses from unpaid receivables.
Reliance on Trade Credit or Open-Account Terms
Smaller retailers and distributors often face limited access to bank credit or encounter high collateral demands, making supplier credit their main source of working capital. Large retail chains, on the other hand, frequently negotiate extended payment terms – sometimes 60 to 120 days or more – creating significant receivable concentrations with a few key buyers. This setup increases the risk of financial disruption if a major buyer defaults or delays payment. Larger manufacturers, with better access to bank financing, often extend open-account terms to their supply chains. In fact, open-account terms account for up to 80% of consumer goods transactions in emerging markets, exposing suppliers to more risk compared to transactions secured by letters of credit.
Demand for Trade Credit Insurance Solutions
For FMCG and consumer goods suppliers, trade credit insurance is a critical tool to manage exposure across a fragmented buyer base. These policies protect against non-payment due to insolvency, prolonged default, or political risks – especially in markets where legal recovery is slow or uncertain. Accounts Receivable Insurance offers tailored policies that cover both domestic and export receivables. These policies include ongoing risk assessments and segmented limits based on buyer quality, helping suppliers expand into new markets with greater confidence. Additionally, insured receivables allow companies to secure bank financing, manage working capital across different currencies, and mitigate the impact of large buyer defaults. This approach provides consistent protection against the volatile credit risks common in emerging markets.
6. Technology, Electronics, and Telecommunications
The industries of technology, electronics, and telecommunications thrive on intricate, multi-country supply chains. These global networks, while enabling diversification of production to regions like Vietnam, Indonesia, India, and Thailand, also introduce challenges such as longer payment cycles and heightened credit risks. As companies shift operations to emerging markets, these complexities become even more pronounced.
Accounts Receivable Exposure
Operating within these intricate supply chains often means suppliers must agree to credit terms that expose them to significant financial risks. In many cases, suppliers extend payment terms of 60 to 90 days – or even longer – to distributors, contract manufacturers, and telecommunications providers in emerging markets. This delay ties up working capital and increases vulnerability, especially given the fast pace of technological advancements that can render products obsolete. Compounding the issue, small and medium-sized technology firms in these markets frequently lack transparent financial reporting, making it challenging to assess their creditworthiness accurately.
Sector-Specific Risks
The sector faces unique challenges, starting with currency volatility. Technology companies often purchase components in U.S. dollars but receive payments in local currencies, which may lose value over time. Political risks are another significant concern. Telecommunications, in particular, is subject to heavy government regulation in many emerging markets, and sudden policy changes can disrupt operations or restrict the import of essential components. Additionally, shifting trade policies and regulatory uncertainties add further layers of risk. The global trade finance gap, estimated at $2.5 trillion, exacerbates these challenges by limiting access to bank financing for many companies in emerging markets.
Reliance on Trade Credit
For technology companies in emerging markets, trade credit often becomes a lifeline when traditional bank financing is unavailable or insufficient. Smaller firms, which may lack the collateral or credit history to secure loans, rely heavily on supplier credit to keep their operations running. In times of financial strain, large multinational suppliers frequently step in, offering extended trade credit to smaller customers as a substitute for bank financing.
Demand for Trade Credit Insurance Solutions
The risks inherent in this sector have driven a growing need for trade credit insurance. Extended payment terms, dependence on a small number of buyers, and exposure to political and currency risks have made such insurance an essential tool. Suppliers entering emerging markets increasingly seek comprehensive policies that protect against buyer defaults, political upheaval, and currency inconvertibility. For example, Accounts Receivable Insurance offers tailored coverage to address technology-specific risks, such as rapid product obsolescence and market disruptions that could hinder a buyer’s ability to pay. Large multinational companies are now centralizing their trade credit programs to streamline underwriting and improve risk management. Additionally, insured accounts receivable can enhance access to bank financing, as lenders are often more willing to lend against insured receivables.
7. Healthcare, Pharmaceuticals, and Medical Supplies
In emerging markets, the healthcare, pharmaceutical, and medical supply industries often operate under some of the longest payment cycles. Major pharmaceutical manufacturers, regional distributors, and medical device suppliers typically extend credit terms ranging from 90 to 180 days to public hospitals, private hospital chains, clinic networks, and pharmacy groups.
Accounts Receivable Exposure
The procurement structure in healthcare creates a significant challenge: concentrated receivables that are highly vulnerable to late payments or defaults. Government tenders and public procurement contracts for medicines and medical supplies usually come with open-account terms of 30 to 120 days. However, these terms are frequently extended in practice, leaving suppliers to shoulder the financial burden. Private hospitals and clinic networks, on the other hand, purchase through distributors who also operate on open-account terms, often enduring extended reimbursement cycles from insurers and health plans. This setup means that a small number of large public hospitals, health ministries, or major private groups can dominate a supplier’s receivables. If just one of these buyers fails to pay, it could threaten the supplier’s financial stability.
Sector-Specific Risks
Suppliers in the healthcare and pharmaceutical sectors face a range of risks, including political, currency, and regulatory challenges, all of which can lead to buyer defaults or delayed payments. These risks often appear in the form of budget cuts, postponed state payments, or changes in reimbursement policies. Currency volatility further complicates matters, as many companies purchase drugs and medical devices in U.S. dollars but receive payments in local currencies that may depreciate over time. Additionally, regulatory risks – such as price controls, emergency use regulations, or import restrictions – can tighten profit margins and disrupt cash flow. Public hospitals and smaller private facilities are particularly vulnerable to these policy shifts and foreign exchange fluctuations.
Reliance on Trade Credit
Given these challenges, companies in the sector often turn to trade credit as a lifeline. During times of crisis, such as the COVID-19 pandemic and subsequent monetary tightening, suppliers extended longer credit terms or increased credit lines to ensure hospitals and distributors could maintain access to critical supplies. For mid-sized distributors, access to bank loans is often limited or prohibitively expensive. In such cases, supplier credit becomes an essential substitute, helping to sustain the healthcare supply chain.
Demand for Trade Credit Insurance Solutions
As suppliers extend longer credit terms, their exposure to extended-term receivables grows, driving a rising demand for insurance solutions. Trade credit and political risk insurance have become essential tools for protecting against buyer defaults and delays caused by sovereign issues. These policies not only safeguard receivables but also support higher credit limits and longer payment terms, making them increasingly important in emerging markets. For instance, Accounts Receivable Insurance provides tailored policies that address both commercial and political risks. With geopolitical uncertainties on the rise, many healthcare companies now see insurance as a key part of their credit management strategy.
What This Means for Trade Credit Strategy in Emerging Markets
Emerging markets are often caught in a web of challenges – extended supply chains, narrow profit margins, and limited access to bank financing. These factors push businesses toward longer payment terms and increased reliance on open-account credit arrangements. Weak capital markets and lengthy operational cycles only deepen this dependence on supplier credit. Add to that the instability many of these markets face – political upheavals, regulatory changes, and currency fluctuations – and the risks grow exponentially. For example, currency depreciation can inflate the cost of debt for imports priced in U.S. dollars, while capital controls, sanctions, or abrupt tariff changes can delay or even block cross-border payments. In export-heavy industries like energy, commodities, and agriculture, sudden shifts in trade policy or sanctions can disrupt cash flows almost instantly, demanding strategic foresight.
To navigate these complexities, companies need a well-rounded approach. This starts with conducting thorough risk assessments across buyers, sectors, and regions. Setting stricter credit limits in high-risk areas and combining open-account terms with safeguards like trade credit insurance, guarantees, or collateral can help balance risk and opportunity. Aligning credit policies with sales goals ensures that risk management doesn’t come at the expense of growth.
Accounts Receivable Insurance (ARI) plays a key role here by offering tailored policies to protect suppliers from risks like non-payment due to insolvency, prolonged defaults, or political barriers such as currency inconvertibility and government actions that block payments. Whether dealing with domestic or international transactions, ARI leverages global credit data to help businesses set appropriate credit limits and terms, even in complex supply chains. This allows sellers to offer competitive open-account terms while keeping potential losses in check. Additionally, insured receivables are often seen as higher-quality collateral by lenders, which can lead to better financing terms or access to more working capital.
Finance teams should take a proactive approach by mapping receivables according to region, sector, buyer size, and payment terms. This helps identify areas of high risk. Partnering with ARI to create custom policies ensures that insured receivables can be seamlessly integrated into internal credit strategies and lender discussions, providing both security and flexibility.
Conclusion
Trade credit plays a vital role in emerging markets, making up around 25% of all alternative financing and stepping in when traditional bank lending slows down. Across industries like manufacturing, energy, agriculture, construction, retail, technology, and healthcare, businesses heavily rely on supplier credit to maintain operations. This is especially true during times of financial uncertainty, such as crises or tighter monetary policies. With global supply chains expanding and small to medium-sized enterprises (SMEs) struggling to bridge funding gaps, trade credit remains a cornerstone for working capital in these sectors.
However, the risks associated with trade credit are significant. Issues like buyer insolvency, prolonged payment delays, currency restrictions, and sudden political upheavals can quickly turn open-account terms into financial strain. Companies that extend credit without safeguards risk losses that can ripple through supply chains, impacting payroll, procurement, and debt obligations. For industries with narrow profit margins and extended payment cycles, even one major non-payment can jeopardize liquidity and stall growth.
This is where trade credit and accounts receivable insurance come into play. By transferring commercial and political risks through insurance, businesses can offer competitive credit terms, enter new markets with confidence, and safeguard cash flow. Additionally, insured receivables often serve as higher-quality collateral, which can lead to better financing terms from U.S. banks and free up working capital for growth initiatives.
To mitigate these risks, finance teams should take proactive steps. Mapping receivables based on region, sector, and buyer risk is essential, as is adopting tailored insurance policies to cover excess exposure. Partnering with services like Accounts Receivable Insurance (ARI) can help businesses create customized coverage plans that align with their sales strategies, integrate seamlessly into credit management systems, and provide ongoing monitoring and claims support across global markets.
In short, insuring accounts receivable isn’t just about protecting against losses – it’s a growth enabler. By combining well-structured credit policies with the right insurance solutions, companies can confidently explore opportunities in emerging markets while maintaining secure cash flow and a strong foundation for expansion.
FAQs
What are the key risks of using trade credit in emerging markets?
Trade credit in emerging markets carries a variety of risks that businesses need to navigate carefully. Among the most frequent challenges are non-payment, which can happen if a customer declares bankruptcy, and delayed payments, which can put significant pressure on a company’s cash flow. Additionally, political risks – like government instability or sudden policy shifts – can lead to unexpected disruptions in trade.
Being aware of these potential pitfalls is crucial for businesses aiming to safeguard their operations and maintain steady financial footing in these ever-changing markets.
What are the benefits of trade credit insurance for industries like agriculture and construction?
Trade credit insurance is a safety net for businesses in sectors like agriculture and construction, shielding them from financial losses when customers can’t pay due to issues like bankruptcy, prolonged payment delays, or political upheavals.
This type of coverage ensures steady cash flow, enabling businesses to extend credit terms with confidence, venture into new markets, and minimize the impact of unforeseen financial challenges. It doesn’t just protect receivables – it also fosters growth and stability, whether operating locally or globally.
Why is trade credit important for businesses in the technology industry?
Trade credit is a key tool for technology companies, helping them manage cash flow effectively while fueling growth and navigating the challenges of global markets. By offering extended payment terms to their customers, businesses can build stronger relationships and gain the flexibility needed to channel resources into innovation and expansion.
In an industry shaped by fast-paced technological changes and economic unpredictability, the risk of non-payment is a pressing concern. Tailored solutions can help protect a company’s financial stability, allowing them to stay focused on achieving long-term goals.
