In today’s tight steel market, sales growth opportunities can be enticing for building materials companies eager to capitalize on demand spikes. But rapid growth in such volatile conditions brings a heightened credit risk that treasury teams must carefully manage. Striking the right balance between expanding sales and protecting the company’s financial health is one of the toughest challenges for treasury managers in the steel industry.
When steel prices are high and demand surges, sales teams naturally push to maximize orders and revenue. Customers may request larger volumes, extended payment terms, or other concessions to secure supply. While this drives top-line growth, it simultaneously increases exposure to credit risk—especially if customers struggle with cash flow or if payment terms become overly generous.
Treasury teams are uniquely positioned to navigate this delicate balance. They need to provide sales and credit departments with clear visibility into the company’s risk appetite and working capital constraints. This requires robust credit risk assessment tools and regular monitoring of customer payment behavior, financial health, and market conditions.
A critical part of managing credit risk in a booming steel market is segmenting customers based on risk profiles. Treasury, working with credit analysts, can classify customers into tiers—low, medium, and high risk—then tailor credit limits and payment terms accordingly. High-risk customers might require stricter terms or even upfront payments, while low-risk ones could benefit from more flexible arrangements to foster loyalty.
Another important strategy is dynamic credit limit management. As market conditions evolve rapidly, static credit limits can become outdated. Treasury teams should implement systems that automatically adjust limits based on real-time financial data and payment trends, helping prevent overexposure.
Cash flow forecasting also plays a central role. Treasury must model the impact of increased sales volumes against the likelihood of delayed or defaulted payments. This foresight enables proactive cash planning, ensuring the company can absorb potential shortfalls without jeopardizing operations.
Balancing credit risk and sales growth also means aligning incentives across departments. Sales teams focused solely on revenue may unintentionally push risky deals, while credit teams may slow down sales with conservative policies. Treasury can act as a mediator, fostering collaboration and creating policies that balance growth with financial prudence.
In addition, treasury should explore credit insurance and factoring options to mitigate risk. Credit insurance can protect against customer defaults, transferring some risk to insurers. Factoring—selling receivables to a third party—can improve cash flow but may come at a cost. Evaluating these tools’ benefits versus expenses is crucial to making informed decisions.
In a tight steel market, agility is key. Treasury teams must stay closely connected with market intelligence to anticipate shifts in steel prices and demand that could affect customer solvency. Early warning systems for payment delays or financial distress help treasury act swiftly to adjust credit policies or collections efforts.
Ultimately, balancing credit risk with sales growth is about managing trade-offs. Treasury teams that succeed are those who integrate risk management into commercial strategy, supporting sales ambitions without compromising liquidity or solvency. By doing so, they help build a resilient company that thrives—even amid steel market tightness and volatility.
