In our March Monthly Insight, we explored how trade finance operates as a system, the interaction of trade flows, legal structures, and operational processes that move goods and capital across markets. That naturally leads to the next question: what happens once that system is in motion?
Where does risk actually show up in trade finance? Not necessarily in a default, but often much earlier, in small delays, small deviations, small breaks in control that accumulate over time.
Most investors may focus on underwriting: the due diligence, the credit analysis, the decision to deploy. What happens after is less visible, but it is where outcomes are determined.
Trade finance is a live exposure tied to physical flows, where goods cross borders, documents change hands, counterparties perform or delay, and repayment depends on a sequence of events completing as expected. The systems we described in March do not run on their own. They require continuous verification and the ability to respond when something deviates from plan.
As Ian Henderson , our Chief Investment Officer, explains, “there is churn and frequent asset replacement. Each trade loan needs to be checked before funding, and once funded, the underlying trade moves through phases that can vary from the original plan. Trade is dynamic, and the financing follows that movement.“
A facility may have a 90-day tenor, but within that period goods are procured, shipped, cleared, delivered, and paid for. At each stage, the transaction can shift.
At which point in that cycle would you expect risk to appear? At shipment? At delivery? At payment? In practice, it can emerge at any of these points, and often in ways that are not immediately visible.
Delays, documentation issues, or changes in counterparty behaviour are not exceptions. They are part of how trade operates. By structuring short-term facilities matched to specific stages of the trade cycle, we contain these dynamics within defined timeframes rather than allowing them to compound. This is where the second line of defence operates.
Two lines, not one
We operate with two lines of defence, not one. The first is underwriting, where the transaction is assessed, structured, and approved. The second begins once capital is deployed and continues throughout the life of the transaction.
Ian describes it as “checks and oversight at the time of funding and during the lifetime of a trade loan, from verifying trade documents and counterparties to ensuring that governance decisions are implemented and that the business operates in line with investor mandates.“
It is also a broader layer of governance, ensuring that Investment Committee and Risk Committee decisions are not only taken, but executed.
At Alteia, monitoring is embedded in how transactions are executed, not separated from them. The objective is not to react after problems occur, but to create conditions where deviations become visible early enough to act.
Three layers of control: goods, documents, counterparties
Once capital is deployed, control is exercised across three interconnected dimensions.
Where are the goods, and who controls them?
For warehoused commodities, Alteia uses on-ground collateral managers who independently verify quality and quantity. Our middle office team, led by Donovan Lindhorst working closely with Angela Paschalides and Abby Grabe , explains, “we have on-the-ground collateral management or stock monitoring over the goods. This enables independent physical verification of goods quality and quantity and supervision of loading and unloading. No goods are released without Alteia’s written consent.“
For goods in transit, the approach shifts. “We require the submission of accurate shipping and export documentation in order to independently verify the movement of goods through our specialised tracking platforms.“
Do the documents match reality?
Operational discrepancies tend to appear first in documentation.
Kirsten Hardie and Trudy Govender from our operations team note that issues typically arise through “document inconsistencies: incomplete documents, incorrect signing parties, incorrect banking details, delays in responding to requests for additional or amended documents, and system-related errors.“
Before capital is released, our middle office cross-checks all elements: quantities, weights, HS codes, dates, ports, vessel names, buyer and seller identities, and Incoterms. If something does not align, the process stops.
As Kirsten puts it, “we go back to the borrower and request amendments or additional documents. Payment is not released until all documents are in order.“
These are not administrative details, they are often the first place where structure and reality begin to diverge.
How is the counterparty behaving?
Monitoring extends beyond documents and goods to counterparty behaviour, and this begins even before deployment.
Nkateko Maimane , Investment Analyst (known as Tumi within the team), explains what she looks for during due diligence: “limited or inconsistent financial information, sensitivity to commodity price volatility, weak counterparty profiles, insufficient offtaker quality, weak management capability, or poor communication.” Even strong financial performance without access to conventional bank financing can be a signal that requires deeper scrutiny.
Once deployed, monitoring becomes continuous. Financial covenants are tested monthly for new or higher-risk clients and quarterly for established ones. Gross profit margins are assessed on each drawdown, and commodity price movements are monitored to manage margin and market risk.
What signals a potential issue? “Delays in offtaker payments, deterioration in covenant compliance, declining margins, adverse price movements, and weak communication from management.” As Tumi notes, “it is often not a single issue, but a combination of smaller signals that indicates a transaction is not progressing as expected.”
She shares a case: “post-funding, communication weakened and information was delayed. By the first few trades, it became evident the transaction was not flowing as expected. Terms were breached, and the structure began to break down.“
The response was immediate with further drawdowns restricted and a structured repayment plan implemented. The system works not because issues do not occur, but because they are caught while still manageable.
When payments do not flow as planned
Repayment is structured to follow a defined path. Off-takers pay directly into Alteia’s collection accounts, aligned with agreed timelines and facility terms.
Our middle office explains: “Our repayment timelines are structured in consultation with the borrower after review of their credit terms with their off-takers and trends in their shipment, customs, and delivery timelines. Prior to each disbursement, we ensure that the sales invoice payment terms align with our payment deadline and the tenor of the specific borrower’s facility agreement.“
Payment reminders are issued automatically, with missed payments red-flagged for escalation.
Ian highlights where concerns become critical: “where payments are not being routed as agreed via the collection account, this raises serious concerns.“
When this happens, the structure changes fundamentally. What was a secured position with direct control over proceeds becomes dependent on whether the borrower chooses to remit payment. If the borrower is under cash flow pressure, that payment may cover other obligations instead.
When a deviation is identified, our middle office flags the issue internally and engages the risk team for assessment. “In the event that a specific matter requires escalation, Alteia has various options at its disposal to enforce its rights and protect investor capital, be it applying pressure on the borrower to ensure its off-takers pay timeously, by pausing new drawdowns until satisfactory performance has been achieved, or exercising certain legal rights such as default or acceleration.“
Portfolio-level monitoring: where risk appetite shifts
Monitoring individual transactions is only one dimension. Portfolio-level oversight looks across exposures to identify patterns and adjust risk accordingly.
Ian explains how this works: “Client facility performance is reviewed at least annually and reported back to Investment Committee. In addition, covenant and collateral monitoring across the portfolio is undertaken and reported to the Risk Committee, and any escalations are reported to Investment Committee and Executive Committee as required.“
When issues are identified at portfolio level, the decisions taken influence how we adjust exposure. “The decisions at Risk Committee and Investment Committee impact risk appetite and exposure thresholds by country, sector, and borrower, reflecting how we adapt to evolving conditions.“
Here is what that looks like in practice: if monitoring reveals that three separate borrowers in the agricultural sector are all experiencing margin compression due to commodity price movements, that pattern triggers a portfolio-level review. The response might be to tighten monitoring frequency, reduce facility limits, or decline new transactions in that sector until conditions stabilise.
Vahini Motah-Ramdenee and Kailash Soocan from our Mauritius team explain their role: “We raise additional provisions under IFRS 9 where risks have increased following credit discussions or valuation committee review and ensure that any deviations are formally reviewed and ratified.“
Monitoring therefore becomes a mechanism for continuous recalibration, ensuring that portfolio construction reflects current realities rather than static assumptions.
Jurisdictions are not all the same
Kirsten notes, “operational processes are standard across jurisdictions, but the required security differs and is managed accordingly.“
Our middle office elaborates: “Security packages are tailored to local law. Depending on the type of financing, conventional or Islamic, Alteia’s security interest in, or ownership of, the goods is maintained and protected. In all jurisdictions, we maintain control over documents of title, goods through collateral management, proceeds through collection accounts, and access through contractual rights such as subleases and tripartite agreements.“
In markets where documentation may be less formalised or practices more variable, additional layers of control are implemented to ensure that transactions remain enforceable and aligned with expectations.
Normal variation vs. serious risk
Not every deviation requires intervention, and distinguishing between normal variation and serious risk is critical.
Ian explains that delays caused by banking processes, logistics, or external events such as force majeure are part of trade. “In a trade transaction, we encounter technical issues which cause delays: banking delays in remitting or receiving funds, banking delays in processing shipping or trade documents, or force majeure events which delay, prevent, or damage shipping, delivery, or production.“
Financial covenant breaches can also be technical. “If financial covenants are not met, this is a breach albeit performance is not impacted. But these technical breaches must be notified and acknowledged by the borrower, and in turn the facility parameters may be changed or the facility withdrawn in time.“
Serious risk begins where structure breaks down, where payments are not routed as agreed, or where clients face market volatility resulting in non-performance. “This is where experience in managing recoveries and restructuring is important, and then proper, timely enforcement of facility documentation and security is vital to minimise losses or facilitate good recovery.“
The distinction matters: you can overreact to normal variation by pausing a facility because a payment is two days late due to a bank holiday, and you damage the relationship with a performing counterparty. Or you can underreact to serious risk by accepting a pattern of late payments as “just how this market works,” and by the time you enforce, the collateral may be impaired and recovery becomes expensive and uncertain.
This is not a judgment that can be automated. It requires experience in trade, understanding of local market conditions, and the ability to distinguish between a counterparty facing temporary friction and one whose business model is deteriorating.
Controlled complexity
When a transaction begins to deviate, the window for effective response is narrow.
A payment arrives two days late, then four, then a week. A counterparty who used to respond within hours now takes days. Documentation that was once complete starts arriving with gaps. These shifts do not announce themselves as problems but appear as variations, and by the time they are recognised as issues requiring action, the leverage to enforce cleanly may already be diminished.
At Alteia, continuous verification across goods, documents, and counterparty behaviour means deviations surface early, and clear escalation pathways ensure they move from middle office to risk team to Investment Committee based on what is emerging.
For investors, this discipline is central to how capital is protected. The ability to recognise problems as they form and to act while control remains intact is what turns monitoring from a process into capital preservation in practice.
Further information
If you would like to continue the conversation or learn more about Alteia’s approach to trade finance, you are welcome to connect with us on LinkedIn or reach out to the team at contact@alteiafund.com or infoksa@alteiafund.com.
Any discussion is informational in nature and subject to applicable regulatory and compliance considerations.
