As we enter the second half of 2025, economic headwinds are swirling once again. From whispers of a mild recession to the continued unpredictability of global supply chains, credit professionals can no longer afford to rely solely on historical trends or gut instinct. Just as pilots rely on simulators to prepare for turbulence, savvy credit managers should be putting their A/R portfolios through their own stress simulations.
Let’s shine a spotlight on the major economic stress testing scenarios and how they can help you get ahead of potential disruptions to your A/R portfolio.
Interest Rate Shocks – A common stress scenario involves modeling what happens to your customers if interest rates spike significantly. For companies operating with thin margins or heavy debt loads, even a 100 to 200 basis point hike can tighten cash flow and impair their ability to pay. By identifying which customers are most exposed to refinancing risk or have floating-rate debt, you can proactively tighten terms or reduce exposure before delinquencies rise. This scenario is especially critical when central banks signal a shift in monetary policy.
Demand Contraction or Recession – In this scenario, you assume a sudden drop in end-market demand, simulating what a mild to severe recession might do to your customers’ revenue streams. Credit teams can project how a 10–20% decline in customer sales might impact their ability to pay you. Customers in sectors such as retail, hospitality, or construction may need closer monitoring. This approach allows you to segment risk by industry verticals and tailor collection strategies accordingly.
Supply Chain Disruption – What if your customer cannot ship products, receive goods and materials, or finish production due to a disruption in their supply chain? This scenario was once considered rare, but after COVID-19, the Suez Canal blockage, and escalating trade disputes, it’s now essential. A stress test can evaluate customers who rely on single-source suppliers, those located in geopolitically unstable regions, or those with “just-in-time” logistics that could snap under pressure. Credit policies may need to adjust if these customers start experiencing production delays and order cancellations.
Currency Volatility – For companies with international operations or customer bases, currency risk can create hidden exposure. A stress test might model a sudden 15–20% devaluation of a customer’s local currency against the U.S. dollar, leading to significant cost increases or lower competitiveness. Exporters and importers are especially vulnerable. If your receivables are denominated in foreign currencies, this scenario is not just theoretical, it affects real cash flow and collectability.
Lending Tightening – A more indirect but important stress scenario involves changes in the credit environment itself. What happens if banks pull back working capital lines for your key customers? Such moves can trigger cash flow problems almost overnight. Monitoring these shifts can help you act quickly if a customer’s liquidity lifeline is suddenly cut off.
So, whether you’re managing a portfolio of ten accounts or ten thousand, running periodic stress tests isn’t just a best practice, it’s a strategic necessity. Use this summer slowdown to recalibrate, re-prioritize, and reinforce your defenses.
Your thoughts and comments (nseiverd@cmiweb.com) are most welcome!
Nancy Seiverd, President
CMI Credit Mediators, Inc.
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