Enter counterparty risk: the possibility that the person, company, or robotic-AI-cow on the other side of your transaction doesn\u2019t do what they\u2019re supposed to do. In manufactured spend that can mean:<\/p>\n\n\n\n
- \n
- A buyer doesn\u2019t pay in part, or in full<\/li>\n\n\n\n
- A merchandise reseller “never received” your inventory<\/li>\n\n\n\n
- A liquidation partner’s accounts are frozen<\/li>\n\n\n\n
- Someone who paid you with a credit card disputes a transaction after<\/li>\n\n\n\n
- A company freezes withdrawals<\/li>\n\n\n\n
- Rob moves to Argentina, which I hear is popular right now<\/li>\n<\/ul>\n\n\n\n
Each of theseactually happens in the real world, though fortunately are somewhat rare. Need to beat a dead horse though? See The Plastic Merchant<\/a>.<\/p>\n\n\n\n
Reputation<\/h3>\n\n\n\n
The manufactured spend community has a surprisingly effective decentralized credit-rating system and we gave it a super unique, fancy name: reputation.<\/p>\n\n\n\n
When people you trust have successfully exchanged millions of dollars with someone else (let\u2019s call them a counterparty), that\u2019s what we call in the business “useful information”. It\u2019s certainly better than dealing with
DefinitelyLegitBuyer420<\/code> whose references consist of his Canadian girlfriend and another Telegram account that was created Tuesday.<\/p>\n\n\n\nUnfortunately though, reputation tells you about past behavior, not future solvency. A reseller that successfully paid you $100,000 last month may still be unable to pay you $100,000 next month. Businesses fail, bank accounts get frozen, employees steal, payment processors shut accounts, fraud happens, and occasionally otherwise honest people decide that your money would look better in their couch.<\/p>\n\n\n\n
I guess tl;dr: Reputation reduces counterparty risk, but reputable parties still can go pear shaped.<\/p>\n\n\n\n
Exposure<\/h3>\n\n\n\n
Setting aside reputation, let’s take a hard
body<\/s> stance and reframe counterparty risk directly as exposure: Suppose that you’ve got a scheme with a broker where you’re paid back two Fridays after the broker receives your goods. Every week, you send the broker $20,000 in merchandise, and every two Fridays later, you get that back.<\/p>\n\n\n\nAfter seeing this work well for months, you decide to triple your volume, and a couple of weeks later, the broker delays payment from Friday until Monday because reasons. Well, congratulations, your $20,000 counterparty risk quietly became $40,000, and if you keep going, maybe it becomes $60,000.<\/p>\n\n\n\n
At that point, you need to decide “Am I comfortable with making a bigger unsecured six-figure loan to Steve from discord?” Because that’s exactly what’s actually happening. This also leads to the now common refrain from whales in manufactured spend.<\/p>\n\n\n\n
\n
“Never float more than you can afford to lose.”<\/p>\n<\/blockquote>\n\n\n\n
Controlling Risk<\/h3>\n\n\n\n
Ok, so what do we do about it? Simple friends, we manage it:<\/p>\n\n\n\n
- \n
- Commit to an exposure limit:<\/strong> Decide how much money you\u2019re willing to have outstanding with a counterparty, and reevaluate that periodically, knowing that you could lose it all<\/li>\n\n\n\n
- Watch settlement time:<\/strong> A buyer paying reliably every two days is a different risk from the same buyer paying every two weeks, Faster settlement means less exposure over time, and speed bumps appear more quickly<\/li>\n\n\n\n
- Scale slowly:<\/strong> A successful $2,000 transaction proves that someone can successfully complete … a $2,000 transaction. It doesn’t prove that they can successfully complete a $200,000 transaction #themoreyouknow<\/li>\n\n\n\n
- Diversify:<\/strong> The likelihood of multiple brokers failing at the same time is quite a bit smaller than a single broker failing<\/a> (duh)<\/li>\n\n\n\n
- Look for speed bumps and react:<\/strong> Tuesday payments become Wednesday payments, then Friday payments, then bank issues, then supposed hospital stays, then something about being part of the next mission around the moon. Signs usually exist, watch for them<\/li>\n\n\n\n
- KYC (sorry): <\/strong> A real name, business entity, address, phone number, mutual contacts, and some idea of how the operation actually works are all more useful than a Telegram avatar of a Lamborghini with a beer can in the driver’s seat<\/li>\n<\/ol>\n\n\n\n
Finally, note that good counterparties generally communicate when something goes sideways. \u201cACH got held, here\u2019s what happened, here\u2019s the documentation, and here\u2019s when I expect it to clear\u201d is very different from silence followed by \u201csorry bro been busy\u201d.<\/p>\n\n\n\n
tl;dr<\/strong><\/p>\n\n\n\n
Counterparty risk can be managed, but let’s repeat the most important point because it’s easy to forget when the money is flowing:<\/p>\n\n\n\n
\n
“Never float more than you can afford to lose.”<\/p>\n<\/blockquote>\n\n\n\n
Happy Thursday!<\/p>\n\n\n\n
![\"\"](\"https:\/\/milesearnandburn.com\/wp-content\/uploads\/2026\/09\/image-1-1024x658.png\")
<\/figure>\n\n\n\nOn the other hand, maybe Rob had a totally valid reason to go to Argentina on short notice, looks legit.<\/p>\n","protected":false},"excerpt":{"rendered":"
Introduction A few weeks ago in a drunken rage (reportedly), we talked about a series on risk in manufactured spend, because apparently sending $173,000 worth<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_editorskit_title_hidden":false,"_editorskit_reading_time":0,"_editorskit_is_block_options_detached":false,"_editorskit_block_options_position":"{}","footnotes":""},"categories":[199,56],"tags":[],"class_list":["post-14227","post","type-post","status-publish","format-standard","hentry","category-risk","category-wisdom"],"_links":{"self":[{"href":"https:\/\/milesearnandburn.com\/index.php\/wp-json\/wp\/v2\/posts\/14227","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/milesearnandburn.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/milesearnandburn.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/milesearnandburn.com\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/milesearnandburn.com\/index.php\/wp-json\/wp\/v2\/comments?post=14227"}],"version-history":[{"count":4,"href":"https:\/\/milesearnandburn.com\/index.php\/wp-json\/wp\/v2\/posts\/14227\/revisions"}],"predecessor-version":[{"id":14232,"href":"https:\/\/milesearnandburn.com\/index.php\/wp-json\/wp\/v2\/posts\/14227\/revisions\/14232"}],"wp:attachment":[{"href":"https:\/\/milesearnandburn.com\/index.php\/wp-json\/wp\/v2\/media?parent=14227"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/milesearnandburn.com\/index.php\/wp-json\/wp\/v2\/categories?post=14227"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/milesearnandburn.com\/index.php\/wp-json\/wp\/v2\/tags?post=14227"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
- Watch settlement time:<\/strong> A buyer paying reliably every two days is a different risk from the same buyer paying every two weeks, Faster settlement means less exposure over time, and speed bumps appear more quickly<\/li>\n\n\n\n
- Commit to an exposure limit:<\/strong> Decide how much money you\u2019re willing to have outstanding with a counterparty, and reevaluate that periodically, knowing that you could lose it all<\/li>\n\n\n\n