Trade Credit Outlook for 2018

Following modest growth in 2017, trade continues to expand within the USA and globally . . . not with the same vigor as prior to the recession but at a steady pace.

In 2017 the U.S. economy grew at a rate of 2-3{5fd5d0c347966b9ca8e0f456e16034dfe54ed0385696705fc3c1ddd66732c056} across many industry sectors and in most states. Inflation is low and consumer confidence is high. Whether or not the new corporate tax cut will benefit most Americans or the U.S. economy in the long run, it may engender near-term effects if it incentivizes companies to repatriate offshore cash to the USA. Exporting rose progressively in 2017, but so did the trade deficit on demand for consumer goods, oil, electronics and other imports.

Manufacturing and other sectors are likewise expanding in Europe, Asia, and other developed economies, most of which boasted growth rates similar to the USA. Emerging economies grew even faster, on average 4-5{5fd5d0c347966b9ca8e0f456e16034dfe54ed0385696705fc3c1ddd66732c056} with indications that this momentum will continue into 2018. Of all exporting countries, China has benefitted the most from this global economic resurgence. If expansion continues at this rate, and especially if sanctions on some major markets are lifted, productivity and output will need to ramp up as well.

Seeking not to be left behind the growth curve, companies in the USA and worldwide are investing in equipment, inventories, et al. But access to capital and investment are not keeping pace, so buyers here and abroad are looking to their suppliers for larger credit lines and longer payment terms . . . and indications are that demand for trade credit will continue to intensify.

For small businesses and middle-market companies, it remains challenging to arrange loans and lines of credit from banks and other lenders. Large corporations, on the other hand, are using their leverage to insist on longer payment terms, putting pressure on entire supply chains. In order to compete effectively, penetrate new markets, and expand market share, suppliers have little choice but to extend more credit.

Larger credit limits and longer payment terms raise both well-known risks and unprecedented ones. When a manufacturer offers bigger credit lines to enable distributors to stock more inventory, what will happen if they’ve over-anticipated the demand for their products? When a large customer (or a customer’s customer) suddenly stipulates 120-day payment terms after years of buying on net 30—notwithstanding the low likelihood of default—how will that long credit impact supplier balance sheets?

Beyond these kinds of commercial risks, as we enter 2018 perhaps the greatest risks relating to credit are political. In the USA, the administration’s domestic strategy is unclear and the legislature is almost completely polarized. NAFTA and other impactful trade agreements are being renegotiated. The ultimate effects of Brexit are unpredictable and in the meantime other countries in Europe face challenges of their own. Tensions are high in the Middle East, the Korean peninsula, and other hot zones. Displaced populations are increasing while nationalism, xenophobia, and other forms of extremism are on the rise.

How will your company use credit to capitalize on 2018’s growth opportunities while managing the risks of not getting paid? What if you’ve extended credit to a customer who goes bankrupt, lacks sufficient cash flow, or gets impacted by any of the above commercial or political challenges? Even where default risks are low, how can you arrange financing for receivables from customers demanding long payment terms?

Trade credit insurance protects against all of these nonpayment risks and facilitates receivables financing by making A/R more attractive to banks and other lenders. Meridian Finance Group, with 25 years of experience and a global team, specializes in brokering trade credit insurance and a wide range of other trade finance tools.

For more information check out our website at www.meridianfinance.com or call or email Meridian at 310.260.2130 or info@meridianfinance.com.