Credit risk is the risk that you are not paid. When you make a sale, you expect to be paid. You have contractual terms, which you expect your customer will comply with. With regret, this is often not the case.
Credit risk is, however, not just about the risk that your customers fail to make payment on due date. It also arises in other parts of your business, as we shall see.
If a customer fails to meet an obligation or a payment on a loan or overdraft is delayed, then this is called being in arrears. Many firms go into arrears for a variety of reasons and often such amounts are eventually repaid with or without interest. At an extreme, there is a default and the amounts may or may not be lost.
To try to reduce ...
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