Keeping a watchful eye on credit risk is no longer optional for Western Australian exporters and importers – it’s essential.
Many businesses are facing tighter margins and increased financial risk, driven by delayed customer payments and rising global insolvency. It’s pushing many businesses to ask: are we going to get paid on time – and in full?
With cash flow under pressure, businesses need strategies to secure payment, especially when trading across borders.
Why international credit risk is increasing
Tightening global credit conditions have been driven by persistent inflation and multiple rounds of interest rate hikes, the OECD’s Global Debt Report 2025 explains.
“This has led to many businesses, both in WA and abroad, to have diminished working capital reserves to comfortably handle unforeseen payment extensions,” says CCIWA Senior Trade Consultant & Austrade TradeStart Advisor Darren Levy.
Perils of default: what happens is a buyer doesn’t pay?
With international customers, the challenges mount. Regulations vary from country to country, and legal recourse – should non-payment occur – can be complex and costly.
Levy says delayed or defaulted invoices can cause insolvency for smaller exporters who expand too fast without adequate safeguards.
“International trade is exciting, but it’s also risky,” he says.
“All it takes is one major customer overseas failing to pay their invoice, and your entire cash position can change overnight.”
Trade finance tools to secure payment
So, how do businesses keep credit risk in check? There are multiple trade finance solutions you can implement, including:
- Letters of credit (LCs): offering assurance that payment is guaranteed by the buyer’s bank once shipment documents meet agreed conditions.
- Export letter of credit confirmation: adding a further layer of protection by having the exporter’s own bank confirm the credit if the importer’s bank fails to pay.
- Documentary collections: releasing shipment documents only after payment or acceptance of a draft, ensuring some security against non-payment.
Building a credit risk policy
Levy emphasises the importance of building out a structured credit-risk policy.
“In volatile economic times, a proactive approach to credit can be the difference between growth and insolvency,” he says.
“We advise businesses to treat credit checks and trade finance tools as standard practice, rather than optional extras.”
CCIWA encourages businesses to consider tailored insurance policies alongside finance tools to further protect against non-payment.
With interest rates and insolvencies rising in various major markets, you want more than just a handshake agreement to guarantee your bottom line.
Related reading: trade finance risks
- Managing currency risk: how to protect your profit margins
- How to manage working capital when trading internationally
- Protecting you cash flow from global trade risks
More resources
Steps you can take now
To protect your business by minimising credit risk and maintaining strong cash flow, consider the following:
- Use LC for large or high-risk orders
- Confirm your LC through your bank for added security
- Set formal credit terms and conduct due diligence on buyers
- Incorporate documentary collections to manage risk without needing full pre-payment
- Review your trade credit insurance options.
- Build a credit policy that is reviewed regularly by finance or risk teams
If you are looking for support or advice in business, investment or trade, contact our experienced International Trade Services team at [email protected].
