In the building materials industry, extending trade credit to contractor customers is a competitive necessity. But without a disciplined approach, it can become a silent threat to cash flow, profitability, and business stability—especially in times of economic uncertainty or project volatility.
For CFOs, managing credit risk isn’t just about setting payment terms or chasing collections. It’s about building a system that balances revenue enablement with risk control, while aligning finance, sales, and operations around shared financial discipline.
Here’s a strategic CFO’s guide to managing credit risk with contractor customers effectively and proactively.
- Build a Scalable Credit Policy That Balances Growth and Control
🎯 Why It Matters:
A one-size-fits-all credit approach either exposes you to too much risk—or restricts your best customers.
CFO Actions:
Segment customers by risk profile, purchase volume, and project type
Define tiered credit limits, terms, and approval thresholds
Implement standard onboarding protocols that include credit checks and trade references
✅ Tip: Align credit policy with your strategic customer segmentation and sales objectives.
- Use Data to Drive Real-Time Credit Decisions
📊 Why It Matters:
Delayed insights = delayed intervention. You need timely visibility to mitigate risk before it becomes bad debt.
CFO Actions:
Integrate real-time AR dashboards into your ERP
Track key metrics: Days Sales Outstanding (DSO), aging buckets, credit utilization, and payment velocity
Set up alerts for high-risk behavior (e.g., partial payments, unusual order spikes)
✅ Tip: Use predictive analytics or third-party credit scoring tools (e.g., D&B, Ansonia) to stay ahead of defaults.
- Align Finance and Sales on Credit Strategy
🤝 Why It Matters:
Sales teams often prioritize growth—finance prioritizes cash. Alignment prevents internal friction and credit leakage.
CFO Actions:
Educate sales on credit policy and the cost of overdue receivables
Share credit performance data by customer or region
Build margin-based incentives that reward both revenue and payment reliability
✅ Tip: Create a cross-functional credit committee to review exceptions, large exposures, and at-risk accounts.
- Match Credit Terms to Contractor Cash Flow Realities
🏗 Why It Matters:
Construction projects often involve milestone payments, draw schedules, and unexpected delays.
CFO Actions:
Offer flexible credit terms tied to project stages or jobsite timelines
Use job-level tracking to manage AR by project, not just by account
Secure lien rights, joint check agreements, or project-specific guarantees when possible
✅ Tip: Don’t just manage credit—manage the project cash cycle with your customer.
- Prepare for Cycles and Seasonality
🔄 Why It Matters:
Contractor AR risk is tied to external cycles: weather, project backlogs, and economic fluctuations.
CFO Actions:
Model seasonal cash flow risk across your contractor base
Adjust credit exposure based on market forecasts or project pipeline visibility
Build reserves or “bad debt buffers” into quarterly planning
✅ Tip: Use stress testing to evaluate the financial impact of defaults or delays from your top 10 contractor accounts.
- Enforce Discipline with Escalation Protocols
🚦 Why It Matters:
Without clear escalation procedures, overdue accounts become long-term liabilities.
CFO Actions:
Define credit hold triggers and thresholds
Automate payment reminders, aging reports, and internal alerts
Develop structured collection plans for 30/60/90+ day aging stages
✅ Tip: Give credit managers the authority—and process clarity—to act decisively and consistently.
- Offer Smart, Flexible Payment Solutions
💡 Why It Matters:
Contractors may want to pay—just not in one lump sum. Smart flexibility can recover more cash faster.
CFO Actions:
Offer installment plans or early-pay discounts to strategic accounts
Provide ACH or credit card options through integrated AR portals
Consider using trade credit insurance for large, high-risk accounts
✅ Tip: Recovery is more valuable than rigidity—structure solutions that protect both parties.
- Monitor and Report Credit Risk as a Strategic Metric
📈 Why It Matters:
Credit exposure is not just a finance problem—it’s a core business risk.
CFO Actions:
Include AR health and credit utilization in monthly executive dashboards
Share trends in contractor behavior with sales, ops, and leadership
Track bad debt as a % of revenue—and aim to keep it under a targeted threshold
✅ Tip: Use visual dashboards to make risk metrics actionable across departments.
- Plan for Succession and Continuity in AR Leadership
👥 Why It Matters:
Credit management often lives with a small, experienced team. Don’t let that become a vulnerability.
CFO Actions:
Cross-train team members on credit evaluation, collections, and customer communication
Document processes and customer-specific arrangements
Build SOPs for AR reviews, escalations, and risk assessments
✅ Tip: Treat credit risk management as a core competency—just like procurement or inventory.
- Make Credit Risk Management a Competitive Advantage
🚀 Why It Matters:
Contractors respect suppliers who offer flexibility—but also clarity and structure.
CFO Actions:
Use strong credit management as a selling point to national accounts
Build a reputation for professionalism in credit communications
Align credit flexibility with loyalty programs or preferred partner status
✅ Tip: Credit terms can build trust—when backed by consistent execution and responsiveness.
Final Thoughts: CFOs Must Lead the Credit Discipline
For CFOs in distribution and supply, credit risk management isn’t just about collections—it’s about financial agility and customer-focused growth. By building strong policies, enabling fast decisions, and aligning teams, you turn credit from a reactive burden into a strategic growth enabler.
