The Ripple Effect of Tariffs: How LBM Businesses Can Protect Their Cash Flow

Rising tariffs, supply chain disruptions, and economic uncertainty are creating financial headwinds for businesses across North America. For companies in the lumber and building materials (LBM) sector, these pressures are making it harder to collect payments, manage cash flow, and extend credit with confidence. Customers in construction, manufacturing, and retail - many already operating on thin margins - are feeling the squeeze, leading to longer payment cycles and increased credit risk.

Here’s a look at how tariffs are impacting key industries, why LBM businesses need to be more vigilant about credit and collections, and what steps they can take to protect their bottom line.

Tariffs Are Reshaping Financial Stability Across Industries

Trade policies are shifting, and with them, the financial health of key industries tied to the LBM sector. Tariffs on imported materials, including steel, aluminum, and manufactured goods, are driving up costs for construction and manufacturing firms. Higher material costs eat into already thin project margins, forcing many businesses to adjust their pricing, delay projects, or reduce their purchasing volume.

For companies relying on imports, uncertainty surrounding future trade restrictions makes financial planning more complex. Some customers are stockpiling inventory, while others are taking a more cautious approach, extending payment terms or renegotiating supplier agreements to preserve cash. These industry-wide adjustments create ripple effects that ultimately impact the credit landscape for LBM businesses.

A Cascade of Financial Strain: Why Credit Risk Is Rising

The effects of tariffs don’t stop at the purchasing level. As costs rise, customers in construction, retail, and manufacturing must navigate increased financial pressure. Some of the most immediate challenges include:

🔹Tighter project margins: With material costs rising, profitability on ongoing and future projects is shrinking. Some firms may attempt to pass these costs to customers, while others may absorb the hit - either way, financial flexibility is reduced.

🔹Project delays and cancellations: Uncertainty around costs and supply chain stability has already led to slowed decision-making in major construction projects. Cancellations or delays can directly impact cash flow, making it harder for customers to meet existing payment obligations.

🔹Delayed payments from their own customers: When businesses at the top of the supply chain face financial strain, that pressure cascades downward. A general slowdown in payments means that LBM suppliers may see extended receivables cycles and higher delinquency rates.

In this environment, a one-time credit check is no longer enough. A customer that was financially stable six months ago may now be struggling under the weight of increased costs and shrinking margins.

Recalibrating Credit Terms to Minimize Risk

The shifting economic landscape means past credit policies may no longer provide adequate protection. LBM businesses will need to take a more strategic approach to credit management, reassessing customer risk profiles and adjusting terms accordingly.

✅Review and adjust credit limits: Some customer segments, particularly those in higher-risk industries, may require lower credit limits or more stringent approval processes.

✅Tighten payment terms for at-risk customers: Extending generous terms in an uncertain market could leave LBM suppliers exposed. A more conservative approach - such as requiring faster payment cycles or deposits - can help mitigate potential losses.

✅Strengthen credit application and monitoring processes: A static credit policy isn’t enough. Implementing a tiered approach allows reliable, long-term customers to retain favorable terms while adopting stricter guidelines for new or higher-risk accounts.

Continuous monitoring is key. Changes in payment behavior, such as when a previously prompt customer suddenly delays invoice payments, should trigger immediate internal review and response.

Strengthening Financial Resilience Amid Uncertainty

Beyond tightening credit policies, LBM businesses should take steps to bolster their own financial position to withstand potential payment delays and defaults. Key strategies include:

🔹Increasing cash reserves: A stronger cash position provides greater flexibility in dealing with late payments and unexpected disruptions.

🔹Exploring trade credit insurance: Protecting receivables can serve as a critical safeguard against customer defaults.

🔹Considering factoring or other receivables management tools: For accounts showing early signs of distress, alternative financing solutions may help mitigate risk.

🔹Developing early intervention protocols: The sooner payment stress is identified, the more options there are to resolve it. Clear internal processes for escalating delinquent accounts can improve overall collection efforts.

A Proactive Approach to Credit Management

With economic uncertainty reshaping financial strategies, LBM businesses must stay ahead of credit risk to protect cash flow and long-term stability. Tightening credit policies, strengthening financial safeguards, and continuously monitoring customer risk are essential steps to mitigating exposure. Those who take action now will be best positioned to navigate ongoing market volatility.

Now more than ever, having real-time visibility into your accounts receivable (AR) portfolio is crucial. NetNow equips LBM businesses with live data sources, automated trade and bank references, fraud prevention tools, and continuous account monitoring - helping them make smarter credit decisions and reduce risk.

Schedule a demo at netnow.io to see why Supply Build Canada trusts NetNow for everything Credit & AR related.