Agrifood businesses face constant credit risks due to perishable goods, fluctuating prices, and global trade challenges. Here’s how to manage them effectively:
- Key Risks: Customer insolvency, delayed payments, trade disruptions, and climate-related losses.
- Impact: Over 73% of agrifood companies report unexpected supply chain losses, with insolvencies rising by 30% globally.
- Solution: Credit insurance protects against unpaid invoices, secures cash flow, and supports growth by allowing businesses to offer credit terms confidently.
Why it matters: Credit insurance reduces financial uncertainty, helps navigate global trade complexities, and ensures businesses can focus on growth without fear of payment defaults. Learn more at CreditInsurance.com.
Food Lending With an Emphasis on Risk Management | The Financial Commute (Ep. 41)
Main Credit Risks in Agrifood Supply Chains
Agrifood businesses operate in a landscape filled with credit risks that can quickly cut into profits. Recognizing these risks is a critical step in safeguarding your business against unexpected losses and ensuring consistent cash flow. This section outlines key credit risks, setting the stage for practical solutions later on.
Customer Insolvency and Non-Payment Risks
The financial instability of customers is one of the most immediate threats to agrifood businesses. On average, businesses in this sector wait 59 days to receive payment for goods and services. This delay can put immense pressure on cash flow, especially when dealing with perishable products. Red flags indicating financial trouble include requests for extended payment terms, evasive responses about payment schedules, or sudden demands for collateral.
There are two primary types of insolvency to be aware of:
- Cash flow insolvency: When a company cannot pay its debts as they become due.
- Balance sheet insolvency: When a company’s liabilities exceed its assets.
Both situations can leave agrifood businesses with unpaid invoices that may total thousands – or even millions – of dollars.
"People tend to think ‘it won’t happen to me,’ but it might happen to your supplier or your customer and it’s something farmers need to know about." – Jane Henderson, senior associate in the restructuring and insolvency team at law firm Thrings
To mitigate these risks, businesses should actively monitor their customers’ financial health. This includes tracking payment habits, reviewing credit reports regularly, and maintaining open lines of communication to stay informed about any changes in their circumstances. Proactively addressing these issues is essential for establishing effective credit insurance strategies.
Trade Policy and Supply Chain Disruptions
Trade policies and global regulations create another layer of credit risk that agrifood businesses must navigate. A significant 83% of companies identify geopolitical risks as having a high or medium impact on their supply chains. Tariffs and trade restrictions can lead to delayed payments and even defaults.
Take the 2022 vegetable oil crisis as an example. The war in Ukraine disrupted sunflower oil supplies – Ukraine and Russia collectively account for over 60% of global exports – while climate-related challenges in major producing countries like Thailand, Brazil, Argentina, and Canada further strained the market. This combination of factors drove prices to record highs.
Other key supply chain challenges include:
- Logistics shortages: Cited by 41% of businesses as a major concern.
- Raw material shortages: Highlighted by 39% of businesses as a significant issue.
- Energy and service interruptions: Identified by 37% of businesses as a critical risk.
When goods are delayed or cannot reach customers, disputes and payment delays become more likely. These disruptions ripple through the supply chain, amplifying credit risks for agrifood businesses.
Climate and Weather Risks
Environmental factors add another layer of complexity to credit management in the agrifood sector. More than half (54%) of businesses rank climate change and environmental issues as top concerns impacting supply chain risks. Weather-related events can devastate harvests, leaving farmers and food producers unable to meet contractual obligations or generate the revenue needed to stay afloat.
For example, production declines in West Africa caused cocoa bean prices to skyrocket to nearly $13,000 per ton – an astonishing 400% increase compared to the decade-long average. Research from BCG and Quantis suggests that global crop production could drop by as much as 35% by 2050, affecting both staple and non-staple crops.
Extreme weather events – such as droughts, floods, and temperature extremes – don’t just impact crop yields; they also disrupt payment cycles. When these events strike during critical growing or harvesting periods, the financial fallout can last for months or even years. Customers may default on contracts as they scramble to secure alternative supplies at higher prices. The interconnected nature of agrifood supply chains means that weather-related challenges in one region can quickly affect trading partners around the globe.
How Credit Insurance Manages Agrifood Credit Risks
With the cash flow challenges and payment delays that agrifood businesses often face, credit insurance plays a critical role in managing risks. It not only secures revenue streams but also enables companies to focus on growth without the constant fear of payment defaults.
How Credit Insurance Works
Credit insurance, including trade credit and accounts receivable insurance, protects agrifood businesses by covering unpaid invoices when customers fail to pay due to insolvency or other reasons. Companies pay a premium based on their annual insured sales, and in return, the insurer compensates for unpaid debts.
For example, the collapse of grain supplier Wellgrain Ltd in 2017 illustrates how credit insurance can safeguard businesses. The company’s insolvency left over 300 suppliers in the agrifood supply chain owed more than $19 million. Suppliers with credit insurance recovered the majority of their debts, maintaining their cash flow during a turbulent time. In contrast, those without coverage suffered significant financial losses.
Beyond debt recovery, credit insurance offers risk assessment tools. Insurers maintain extensive databases filled with financial and creditworthiness information, helping businesses make smart decisions when extending credit – especially when entering new markets or dealing with international clients.
These features combine to provide not just protection but also opportunities for growth and market expansion.
Benefits for Agrifood Businesses
The advantages of credit insurance go far beyond simply recovering unpaid debts. For agrifood companies, which often operate with slim profit margins, these benefits can be the difference between thriving and struggling.
Revenue protection is one of the most important advantages. A 2023 industry report revealed that 80% of companies using trade credit insurance experienced better customer relationships and more timely payments. This sense of financial security allows businesses to prioritize growth without being consumed by worries about defaults.
Credit insurance also enables businesses to offer extended payment terms – like 60 or 90 days – without taking on excessive risk. These flexible terms can strengthen relationships with existing clients and attract larger customers who expect favorable credit conditions.
"Trade credit insurance helps safeguard revenue, sustain growth, and navigate uncertainty with greater resilience." – Coface
Another key benefit is better access to financing. Insured receivables are seen as lower-risk assets by banks and lenders, making it easier for businesses to secure favorable loan terms or credit lines. This can be especially crucial during periods of expansion or when managing seasonal cash flow pressures.
Credit insurance also supports market expansion by mitigating the risks tied to new customer relationships. For instance, Allianz Trade helped a logistics firm avoid a $1 million loss when a major client defaulted, while a manufacturing company used its credit insurance to prevent a $500,000 loss after a key customer filed for bankruptcy.
Cash flow optimization is another advantage. With credit insurance, businesses don’t need to set aside large reserves to cover potential bad debts. This frees up capital for investments in inventory, equipment, or other growth initiatives – particularly valuable in the agrifood sector, where seasonal cycles often dictate purchasing and inventory needs.
The current economic climate further highlights the importance of credit insurance. Business bankruptcies in the U.S. have risen by 23.5% in 2025 compared to 2024, and Allianz Trade reports a 30% increase in insolvencies across major economies like the U.S., Canada, France, and Japan. A global rise in insolvencies is also expected, with a projected 10% increase in 2024, marking the highest levels in 15 years.
"As the government support schemes taper off, the market expects to see the levels of insolvency increase; and having trade receivables backed by insurance as an asset will become even more important as time goes on. It’s known as credit insurance, but it’s more opportunity protection." – Gary Lorimer, Head of Business Development for Aon Credit Solutions
For more information on choosing the right credit insurance coverage tailored to your industry and risk profile, visit CreditInsurance.com.
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Best Practices for Using Credit Insurance in Agrifood Operations
To make the most of credit insurance in agrifood operations, it’s essential to integrate it thoughtfully into your financial strategy. By following these best practices, you can ensure this tool not only protects your revenue but also supports your business growth.
Risk Assessment and Policy Selection
Begin by thoroughly assessing your customer portfolio. Look at customer payment behaviors, the industries they operate in, and their geographic distribution. This analysis helps tailor your coverage to match your specific risk profile. It’s also important to project realistic annual sales and review assessments from insurers to ensure the policy aligns with your business needs.
When choosing a policy, consider both your current receivables and your future growth goals. Credit insurance can act as a catalyst for growth, helping you confidently pursue new customers while retaining your existing ones. Since premiums are calculated based on your insured annual sales, having accurate sales projections for the coverage period is crucial. Advances in data analytics now make it easier to customize policies to fit your business.
Leveraging Credit Insurance Data
One of the greatest advantages of credit insurance is the wealth of data it provides. Insurers offer access to extensive, real-time databases filled with insights that can help you anticipate risks and make smarter credit decisions. These databases allow you to track credit-risk updates, analyze market trends – like shifts in economic or regulatory conditions – and evaluate the creditworthiness of potential buyers. This kind of information is invaluable for making safer, more informed decisions.
Keep an open line of communication with your insurer. Sharing updated financial information can lead to better policy terms and more accurate risk assessments. At the same time, review your internal credit management processes to ensure they align with the insights provided by your insurance data. For example, refining your trading terms based on this information can make them more enforceable and effective.
As highlighted in a recent WTW podcast, the CFO of Lincoln Provision emphasized that trade credit insurance serves a dual purpose: it not only protects businesses but also provides critical insights into the creditworthiness of new customers.
In the agrifood sector, where credit risks are high and profit margins are tight, this dual role is particularly valuable.
Finally, regularly update your insurer on your business performance and any changes in market conditions. This ongoing communication allows for more precise and tailored risk assessments.
For more detailed advice on implementing these best practices in your agrifood operations, CreditInsurance.com offers a range of resources and expert guidance designed specifically for the challenges in your industry.
Credit Insurance vs. Other Risk Management Tools
Agrifood businesses face a variety of credit risks, and there are several tools available to manage them. Among these, credit insurance offers a well-rounded solution. By comparing credit insurance to other risk management options, it becomes clear how it addresses unique challenges like seasonal cash flows and the complexities of global trade.
Comparison of Risk Management Options
Here’s a breakdown of how credit insurance stacks up against other common tools:
| Feature | Credit Insurance | Self-Insurance | Letters of Credit | Factoring |
|---|---|---|---|---|
| Protection Scope | Covers up to 90% of unpaid invoices due to insolvency or default | Depends on internal reserves | Secures payment for specific transactions | Covers non-payment in non-recourse setups |
| Cost Range | 0.075% to 0.35% of insured sales | Tied-up capital as opportunity cost | Variable fees | 1% to 5% of invoice value |
| Cash Flow Impact | No upfront cash provided | Reserves capital for bad debts | Buyer’s funds held by bank | Provides immediate cash advance |
| Control Level | Full control of receivables | Managed internally | Bank imposes strict terms | Factoring company manages collections |
| Expertise Access | Includes creditworthiness data and risk analysis | Limited to internal expertise | Banks manage transaction security | Factor handles credit checks and collections |
| Flexibility | Coverage spans a set period with ongoing protection | Adjusts based on internal decisions | Rigid, transaction-specific terms | Varies by agreement |
| Growth Support | Facilitates expansion to new customers | Limited by internal reserves | Complexity may hinder sales | Supports growth through cash flow improvements |
This table highlights why credit insurance is often the preferred choice. It combines robust protection with the flexibility to support growth, unlike other methods that may tie up resources or impose restrictive conditions.
For agrifood businesses, these distinctions are especially important. Seasonal cash flows and international trade complexities demand solutions that not only mitigate risk but also encourage growth. Credit insurance achieves this balance by protecting against non-payment while enabling businesses to confidently extend credit to new customers – something tools like cash in advance or letters of credit struggle to do due to their higher costs and rigid terms.
Self-insurance, while offering full control, requires significant internal expertise and ties up funds that could be used to grow the business. Credit insurance, on the other hand, frees up these funds and leverages real-time data to make smarter credit decisions. This is particularly valuable in light of the reported 30%+ rise in insolvencies across major economies, including the U.S., Canada, France, and Japan, as noted by Allianz Trade.
Letters of credit provide reliable security but can limit flexibility. Credit insurance allows sellers to extend credit to buyers with reduced risk, making it a more dynamic option for enhancing sales.
Factoring offers quick access to cash but comes with higher fees – typically 1% to 5% of the invoice value – which can erode profitability, especially for agrifood businesses with longer payment cycles. Credit insurance, with its lower premium costs, becomes a more cost-effective choice in such cases.
"It’s known as credit insurance, but it’s more opportunity protection." – Gary Lorimer, Head of Business Development for Aon Credit Solutions
For agrifood businesses operating globally, credit insurance provides additional value by offering insights into the creditworthiness of new customers in international markets. It also helps secure better financing terms by protecting trade receivables. This combination of risk mitigation and market intelligence makes credit insurance a standout option for navigating the complexities of agrifood supply chains.
To explore how these tools can fit into your agrifood strategy, visit CreditInsurance.com.
Conclusion: Building Stronger Agrifood Supply Chains with Risk Management
The agrifood industry is grappling with tough challenges in 2025, with business bankruptcies in the United States climbing by 23.5% compared to 2024. Coupled with climate unpredictability, trade disruptions, and economic instability, the need for effective credit risk management has never been more pressing for agrifood businesses.
Credit insurance plays a dual role – it not only protects receivables but also transforms risk management into a tool for growth. By guaranteeing payment for goods and services even when a buyer defaults, it ensures the steady cash flow that agrifood operations depend on to thrive.
Considering that receivables make up anywhere from 20% to 80% of a company’s assets, credit insurance offers more than just protection – it opens doors. It reassures banks of stable cash flow, enabling businesses to secure better financing terms and expand into new markets. As Gary Lorimer, Head of Business Development for Aon Credit Solutions, explains:
"As the government support schemes taper off, the market expects to see the levels of insolvency increase; and having trade receivables backed by insurance as an asset will become even more important as time goes on. It’s known as credit insurance, but it’s more opportunity protection."
– Gary Lorimer
In today’s global economy, where up to 80% of trade depends on financing or credit insurance, integrating credit insurance into business strategies sets agrifood companies on a path to sustainable growth. It provides the stability needed to navigate seasonal cash flow fluctuations, manage complex supply chains, and maintain strong supplier and customer relationships – even during economic downturns.
Treating credit insurance as a cornerstone of risk management not only shields businesses from uncertainty but also drives expansion and strengthens partnerships. It equips agrifood companies to build supply chains that can withstand challenges and seize new opportunities.
To learn more about how credit insurance can support your business and strengthen your supply chain, visit CreditInsurance.com for expert insights and tailored solutions.
FAQs
How can credit insurance help agrifood businesses protect against customer insolvency and payment defaults?
Credit insurance acts as a financial safety net for agrifood businesses, protecting them from risks like customer insolvency or non-payment. When a customer can’t fulfill their payment obligations – whether due to bankruptcy or other financial struggles – the policy steps in to cover the unpaid amount. This helps businesses maintain steady cash flow, which is critical for day-to-day operations.
With these protections in place, agrifood companies can operate with more confidence, offering credit to a broader range of customers without constantly worrying about potential losses. This added layer of security is especially valuable in an industry where market fluctuations and unpredictable payment behaviors can create significant challenges.
How do geopolitical events and climate challenges impact credit risks in agrifood supply chains?
Geopolitical tensions and climate-related challenges are shaking up agrifood supply chains, making credit risks a growing concern. Political unrest, sanctions, and resource conflicts can trigger supply shortages, while extreme weather events – like droughts or floods – threaten crops and livestock, putting production at risk.
The ripple effects of these disruptions are hard to ignore. Businesses in the agrifood sector may face delayed payments, customer bankruptcies, and heightened financial uncertainty. Tackling these risks head-on is crucial for keeping supply chains steady and safeguarding financial stability.
How does credit insurance support agrifood companies in managing seasonal cash flow challenges and expanding into new markets?
Credit insurance plays a crucial role in helping agrifood businesses maintain financial stability. It safeguards them against potential risks such as customer insolvencies or non-payment, ensuring that unexpected financial setbacks don’t derail operations. This protection also improves cash flow management, enabling businesses to extend longer credit terms to their customers without taking on additional financial risk.
With these risks under control, agrifood companies can focus on growth. Whether it’s exploring new markets, seizing expansion opportunities, or negotiating better financing terms, credit insurance offers the confidence to take bold steps. It’s particularly useful during seasonal cash flow swings, as it provides a steady financial cushion, minimizing uncertainty and keeping operations running smoothly.
