Credit risk in forwarding: paying out before being paid

The structural funding gap

Suppliers want settlement sooner than customers offer it, and on import work the firm frequently advances duties and taxes on the trader's behalf as well, which are outlays with no margin attached at all. The gap between paying out and being paid is filled by the firm's own facilities, and it widens in exact proportion to how well the business is doing. That is the counter-intuitive part. A quiet month improves cash; a record month consumes it. Growth in forwarding needs to be financed deliberately rather than celebrated and then survived.

The exposure is larger than the sales ledger shows

Invoiced debt is only one component. Add work performed but not yet billed, files still open with costs accruing, sums disbursed to authorities and carriers on the customer's behalf, and charges expected to arrive from correspondents. The true exposure to a customer at any moment is the sum of all of them, and most systems present only the first. Limits set against invoiced debt alone therefore understate the position, frequently by a wide margin on import-heavy accounts. Measuring total exposure is the single most valuable change most credit functions can make.

Controls that actually hold

Set the limit against total exposure and review it as volume grows rather than annually. Screen at onboarding and monitor afterwards, since a customer's position changes. Operate a stop list that operations staff can see and that requires a named authority to override, because the control fails if the desk can quietly ignore it. Take payment in advance for new, seasonal or deteriorating accounts. Where volume justifies it, credit insurance transfers part of the loss, and deposits or a bank guarantee provide security for a specific relationship. Each has a cost that belongs in the pricing of the account rather than in overheads.

Possession as leverage, within limits

Standard trading conditions commonly assert a right to retain goods and documents against unpaid charges, sometimes only for the charges on that consignment and sometimes for the whole account. Whether such a right is effective, and against which parties, depends on the jurisdiction and on the terms actually incorporated, so its practical strength has to be established locally in each market where it might be exercised. Even where enforceable, it is a blunt instrument. Holding cargo damages the relationship, may harm an innocent consignee who is not the debtor, and creates storage costs that grow while the dispute runs. It works best as a lever applied early, not as a remedy of last resort.

The account that grows too fast

The characteristic failure is not a bad payer discovered slowly; it is a good payer growing quickly. Volume rises, the limit is extended informally to accommodate it, disbursements climb, and the total exposure reaches a level that would never have been approved if anyone had calculated it in one place. A standing review triggered by growth rather than by the calendar catches this. So does a simple rule that any increase in exposure beyond an approved threshold requires the same scrutiny as a new account.

Frequently asked questions

Why are duties and taxes advanced for customers so risky?

Because they can dwarf the freight on a valuable consignment and carry no margin at all. A single unrecovered disbursement can remove the profit from a long run of successful shipments for the same account.

Should credit limits count unbilled work?

Yes. Files in progress, accrued costs and disbursements already made are real exposure to that customer. A limit measured only against issued invoices routinely understates the position on import-heavy accounts.