When a broad tariff policy — like Donald Trump’s recent across-the-board tariffs — is implemented, it suddenly forces credit managers in the U.S. to navigate new challenges in evaluating credit risk on their international customers. For example, decreasing credit limits could be a first prudent risk management move. By reducing the exposure to international accounts that may become financially stressed, U.S. companies could better safeguard their cash flow. Or, U.S. companies could also consider requesting advance partial payments, shortening payment terms, requiring letters of credit, or using non-recourse international factoring to factor their overseas receivables.
On the other hand, reducing the amount of credit extended may damage long-standing relationships with reliable overseas customers. Many businesses operate on trust and mutual benefit, and overly restrictive credit policies could drive customers to competitors in countries with more flexible terms. For customers in sectors less impacted by the tariffs or those with strong financial records, maintaining normal credit terms could support continued growth and partnership, rather than sending a signal of mistrust or risk aversion.
Furthermore, credit managers must also consider that not all overseas customers will be affected equally. Those in countries or industries less directly targeted by the tariffs may be relatively insulated from negative effects. In such cases, maintaining or even cautiously expanding credit terms could position U.S. businesses to gain market share while others retreat. This more nuanced, case-by-case approach allows credit managers to tailor risk strategies instead of applying a blanket policy that might stifle potential growth.
Ultimately, credit managers should be proactive but flexible. It is wise to reevaluate credit risk models in light of new tariffs, but an informed strategy will weigh both macroeconomic factors and individual customer data. A combination of tighter scrutiny, better communication, and targeted credit adjustments can help U.S. companies navigate this uncertain environment without sacrificing viable international opportunities.
Your thoughts and comments (nseiverd@cmiweb.com) are most welcome!
Nancy Seiverd, President
CMI Credit Mediators, Inc.
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