Australian trade creditors are being advised to review their risk exposure to tariffs and supply chain disruptions as insolvency rates continue to rise.
In a recent feature for the Australian Institute of Credit Management (AICM), Lockton’s Sam Rodda outlined a series of steps credit professionals can take to adjust their strategies in response to ongoing global trade uncertainty.
The guidance arrives amid a 43% year-on-year increase in local insolvencies and heightened concern over the stability of international supply chains.
Rodda emphasised that relying solely on traditional credit assessments may leave businesses vulnerable in a more volatile economic environment.
“Businesses can no longer afford to take a passive approach to credit risk,” he said.
Rodda noted that the first step for businesses is to identify which customers are most dependent on goods or suppliers affected by tariffs.
“Begin with identifying which customers depend on tariff-sensitive goods or supply chains. Asking the right questions can reveal hidden vulnerabilities before they become payment risks,” he said.
Even if customers appear financially healthy, disruption to key inputs can create liquidity pressures.
“Tariffs often destabilise cash flow more than they affect margins. This increases the risk of delayed payments or defaults even from otherwise reliable customers,” Rodda said.
Scenario modelling, including simulations of tariff changes, is recommended to understand how client operations might respond to shifts in trade policy.
These assessments can support more informed credit decisions and highlight where intervention might be required.
“Incorporate scenario modelling into your credit assessments to forecast what happens if tariffs are imposed (or lifted)," Rodda said. "Could a key customer absorb cost increases, or would they default?”
The piece also stressed the importance of reviewing existing insurance coverage.
Trade credit insurance and business interruption policies may not fully account for the financial consequences of tariff-related issues.
Rodda suggested these coverages should be evaluated and updated accordingly.
“Tariff-related disruptions can trigger missed payments, supply delays, or revenue losses,” he said.
Engaging customers early about the impact of tariff changes was also highlighted as a risk management tool. Open communication can help identify issues before they escalate and support renegotiation of payment terms when needed.
“Engaging customers in proactive dialogue about tariff impacts helps preserve trust, adapt terms, and flag early warning signs before issues escalate,” Rodda said.
The analysis comes as commercial credit activity in Australia shows uneven trends.
According to data from Equifax, overall business credit applications rose 1.6% in March 2025 compared to the previous year, with the growth driven largely by business loans, which increased by 3.9%.
However, demand for trade credit and asset finance declined, with applications falling 3.3% and 2.3%, respectively.
Small and medium-sized enterprises (SMEs), in particular, appeared to be holding back on new borrowing, with demand down by more than 8% year-on-year.
Scott Mason, general manager at Equifax, attributed this shift to a more conservative financial posture among smaller firms.
Several sectors – including construction, hospitality, and retail – are seeing more pronounced declines.
SME credit demand in the construction industry dropped 18%, especially in eastern states, where financially weaker firms are increasingly seeking funding to manage gaps in cash flow.
In hospitality, credit applications fell nearly 17%, with insolvency rates up by 32%.
The retail sector also showed strain, recording a 7.4% dip in credit demand and a 24% increase in business failures.
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