
I don’t profess to be an economist. In fact, like many credit professionals, my focus is primarily on the credit and collection problems directly in front of me. However, in the back of my mind is the accumulation of all the news and opinions I’ve been hearing from various economic and financial sources, especially concerning the impact of tariffs. As you can imagine, trying to make sense of it all is challenging, since the impact is like a moving target.
Nevertheless, in speaking with bankers, investors, trade experts, and others, it appears that the implementation of tariffs can significantly impact commercial claims, particularly in industries that rely on international trade.
For the record, tariffs — taxes imposed on imported goods — affect business operations, supply chain costs, and financial obligations, all of which can influence the ability of companies to meet their commercial obligations. Here’s a quick synopsis at how tariffs may impact commercial claims:
Increased Costs Can Lead to Payment Delays — When tariffs are imposed, the cost of imported goods rises. Businesses that depend on these goods, whether for resale or production, face higher expenses. These additional costs can in turn put stress on cash flow, making it harder for companies to pay vendors and creditors on time. As a result, commercial claims for overdue payments may increase, as more companies struggle to meet financial obligations.
Changes in Credit and Payment Terms — Suppliers may tighten credit terms in response to tariffs, requiring shorter payment cycles or higher upfront payments. Businesses facing these stricter terms may struggle to adjust, leading to more overdue accounts and claims for unpaid invoices.
Disputes Over Contractual Agreements — I was not aware of this, but it appears that many commercial contracts do not account for sudden tariff changes. When tariffs increase costs, buyers may dispute invoices, argue for renegotiation of payment terms, or even refuse payment. This can lead to disputes over liability for increased costs and even a complete breach of contracts. As a result, companies may seek third party collection support or go down the road of legal action to enforce payment terms or challenge tariff-related price adjustments.
Supply Chain Disruptions and Unfulfilled Orders — Tariffs can force companies to shift suppliers, leading to supply chain disruptions. If businesses cannot procure goods at previously agreed prices, they may delay or cancel orders, leading to disputes with suppliers and manufacturers. Here too, this can result in an increase in commercial claims for non-delivery of goods, breach of contract, or failure to fulfill purchase agreements.
Increase in Bankruptcy and Insolvency Claims — Industries heavily reliant on international trade, such as manufacturing, wholesale, and retail, may face financial distress due to rising costs and reduced demand caused by tariffs. Businesses unable to absorb tariff costs may default on commercial loans or declare bankruptcy. This also can lead to an increase in commercial debt collection claims, creditor lawsuits, and insolvency proceedings.
Naturally, there are many more factors involved that would affect a company’s ability to fulfill its payment obligations on time, but I hope the above is a good start for us to have a conversation on what may be coming down the road.
Your thoughts and comments (nseiverd@cmiweb.com) are most welcome!
Nancy Seiverd, President
CMI Credit Mediators, Inc.
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