BLOG — July 04, 2025
Global Trade, Local Strain: The Impact of Trade Tariffs on Customer Payment Behaviour and Supplier Trade Credit Limits.
By Giorgio Baldassarri and Arsene Lui
This article is written and published by S&P Global Market Intelligence, a division independent from S&P Global Ratings. Lowercase nomenclature is used to differentiate S&P Global Market Intelligence credit scores from the credit ratings issued by S&P Global Ratings.
The ongoing trade war between the United States (U.S.) and other countries is likely to have deep implications for firms supply chains and profitability. The degree of this impact will depend on the severity of the tariffs imposed on goods, the ability of producers to pass the incremental raw material costs to customers via a price increase, and the elasticity of consumer demand. Firms operating in different sectors may experience an uneven decline in financial performance.
In this context, it is important for suppliers to understand how to manage a potential liquidity crunch in the face of delayed customer payments or, in the worst cases, non-payment. To assist in this endeavor, S&P Global Market Intelligence has developed a framework to help suppliers set maximum exposure limits for trade credit exposures, at both individual entity and overall portfolio-levels.
The model considers the payment behaviour and credit risk profile of each entity within a supplier’s trade exposure portfolio, along with the supplier’s risk appetite and the potential impact of expected losses on both the customer’s and supplier’s credit risk profile.
The timeliness of each customer’s payment behaviour plays a critical role in this framework. Given the current market uncertainty due to various shocks, such as supply chains disruptions, geopolitical turmoil, and trade tariffs, it is essential to examine how payment behaviour has evolved in each sector and how this may affect the maximum exposure limit.
The Days Payable Outstanding (DPO) is a financial measure that reflects the average time a company takes to pay its bills and invoices. Typically, a high DPO allows a customer to retain liquidity and seize further business opportunities, but it may also hint to the onset of financial issues. This metric can be readily calculated for public companies, using information available in quarterly financial statements (i.e. inventory, accounts payable, and cost of goods sold), but it is often not readily available for private companies. More importantly, DPO does not indicate whether customers are paying their suppliers on time, as payment terms can vary significantly by industry, and even within a given industry.[1]
A customer’s failure to make payments within the agreed terms can strain the supplier’s liquidity. For this reason, it is critical to set and manage trade credit limits based on the actual number of days payments are delayed. The Days Beyond Term (DBT) constitutes a critical input into Credit Analytics’ Maximum Exposure Limit, as it measures the (dollar-weighted) average number of days that a customer’s invoices or bills remain outstanding beyond the agreed due date. It also offers an easy way to compare customers within a supplier’s portfolio.
Table 1 compares the average Days Beyond Term for U.S. firms in Q1 2025 vs the previous year, split by sector.
Table 1: Average Days Beyond Term for U.S. firms, split by sector.
Source: S&P Global Market Intelligence. For illustrative purposes only. Data as of May 13th, 2025.
Interestingly, in Q1 2025, the majority of U.S. firms experienced an increase in the average DBT, with respect to the previous 12 months. While some changes are still within the volatility levels observed in the previous year, we highlight two sectors where changes appear statistically significant:[1] Capital Goods and Consumer Products (Durables).
Although it may be difficult to draw definitive conclusions, the increase in payment delays for U.S. firms in these two sectors is consistent with two potential factors: (i) customer financial stress and/or (ii) a reduction in the payment terms requested by suppliers. Both factors are likely driven by the introduction orincrease of U.S. Government tariffs in early 2025 on specific raw materials, such as steel and aluminum, as well as on imports from foreign countries including China, Canada and Mexico.
The change of payment delay can have material implications on the maximum exposure limit for a supplier’s trade portfolio.
Table 2 shows the Maximum Exposure Limit calculated for a representative diversified portfolio,[2] at the end of 2024 and at the end of 2025 Q1. For the sake of simplicity, we assume all inputs into the framework (not shown here) remain constant and let only the days beyond term change between the two periods (as per Table 1).
Table 2: Maximum Exposure Limit (MEL) for a supplier’s representative diversified trade portfolio.
Source: S&P Global Market Intelligence. For illustrative purposes only. Based on a sample of circa 1 million U.S. firms (data as of May 13th, 2025).
The reported values represent the recommended maximum exposure limit for each customer on a standalone basis, taking into account the customer’s size, payment behaviour, and the risk tolerance set by a supplier with respect to each customer’s credit risk profile.
Customers whose maximum exposure limits decreased between the two periods are highlighted in bold. Notably, in this example, the total of company Maximum Exposure Limit decreased by more than $9 million. It is worth noting that many exposure limits remained the same, despite the corresponding firms paying with increasing delays; this is due to the existence of specific delay thresholds beyond which the MEL is reduced.
However, when managing trade exposure limits, suppliers must also consider additional important factors, such as their risk appetite towards a change in their own credit score due to expected losses and other portfolio effects. These aspects form an integral part of the Maximum Exposure Limit framework and drive the outputs at portfolio level. If you want to learn more and see how this framework can help you better manage your trade credit limits, visit here.
[1] “A timeline of Trump’s tariffs so far”, W. Grantham-Philips (Associated Press), 10 April 2025, available here.
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