Trade Credit and Risk Management

CHAPTER 1

Risk Management for Trade Credit Financing Instruments

Introduction

The risk mitigation of trade credits reflects the implementation of the credit risk management system by ensuring the convergence between the underlying risk exposure and the capital planning of the financiers. Given equal trade credits, exposure to credit risk depends on the legal characteristics of the transaction and the services offered, while risk mitigation depends on the credit risk embedded in the assets. Therefore, alternatives to the implementation of an internal rating system distinguish between exposures based on purchased and/or assigned trade receivables (see An Internal Rating System for Exposures Based on Purchased/Assigned Trade Receivables section) ...