As credit risk professionals, we’re trained to make decisions based on patterns using financial metrics, payment histories, and macroeconomic indicators. But in today’s environment, the patterns are breaking down. Many companies find themselves trying to navigate risk over the next 12 months in conditions where even seasoned economists struggle to make accurate forecasts. Here are a few reasons why planning ahead is becoming so complex:
Conflicting Economic Signals Are Creating Confusion – Normally, rising interest rates would cool off the economy sharply, leading to higher business failures and weaker demand. Yet even after aggressive rate hikes, employment remains relatively strong, consumer spending is inconsistent, and inflation is proving stubborn. Mixed signals make it difficult to predict whether customers are headed toward stability, stagnation, or outright distress. As a result, credit risk managers must prepare for multiple scenarios rather than one expected outcome.
Global Instability Is Heightening Risk Beyond Financial Fundamentals – Credit risk is no longer just about a customer’s balance sheet but increasingly involves supply chain vulnerabilities, geopolitical tensions, and sudden regulatory changes. Trade disruptions, energy prices, and political instability (think Ukraine, Middle East, China/Taiwan) can cause even financially healthy customers to experience sudden payment problems. Global events outside of your customer’s control are making long-term credit planning far more unpredictable.
Customer Behavior Is Shifting Quickly and Quietly – Some customers are quietly stretching payments, downsizing operations, or changing their product focus to survive. These shifts aren’t always obvious from traditional credit reports until it’s too late. Payment patterns and informal communications with customers have become critical early warning systems. Credit managers need to be more proactive in using their judgment, observations, and interpretations rather than hard numbers.
Traditional Credit Models Are Struggling to Keep Up – Most companies’ credit scoring and monitoring systems may have been built during times of relative economic stability. Today, historical payment behavior may no longer predict future performance. A customer who paid like clockwork for five years might suddenly default because of external pressures you couldn’t have seen coming. This forces a rethinking of risk models, emphasizing more frequent reviews, industry-specific risk analysis, and real-time monitoring.
Planning Must Be Fluid, Not Fixed – In this kind of environment, the old practice of setting a 12-month risk strategy and checking in quarterly is dangerously outdated. Flexibility is now a competitive advantage. Companies that build early warning systems, conduct rolling risk assessments, and empower their credit teams to make fast adjustments will be much better positioned to weather unexpected downturns than those that rigidly stick to outdated forecasts.
Your thoughts and comments (nseiverd@cmiweb.com) are most welcome!
Nancy Seiverd, President
CMI Credit Mediators, Inc.
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