What is credit risk?
Credit risk is the risk of losing money because a borrower is unable to repay the money or meet other agreed upon obligations. Traditionally this term has been used by banks and credit institutions, since they lend large sums of money and they need to actively manage the credit risk of their loans to stay profitable.
Credit risk is most simply defined as the potential that a counterparty will fail to meet its obligations in accordance with agreed terms.
However, credit risk is something that all firms should consider. When any firm sells something to another firm and the payment is not completed immediately (for example it is agreed that the payment will be completed when the product is delivered), credit risk exists and the seriousness of this risk should be assessed.
The low credit score is typically caused by cash-flow issues and bad management of assets.
How to approach credit risk?
That is where credit risk reports come in. Estimating the credit risk of a company you are considering doing business with is the first step your company should take to mitigate credit risk. Depending on the credit risk of your potential business partner, recommended precautions could be for instance taking no additional precautions, asking for prepayments, asking for a payment premium and outright declining doing business with them. The credit risk analysis provided by these reports will help you with your business decisions by helping you analyze what kinds of precautions should be taken.
The low credit score is typically caused by cash-flow issues and bad management of assets.
Typically, Credit Risk Report providers give a credit rating on a specific scale – such as from D to AAA – and recommend credit limit for that particular business. These reports help you to make well-informed decisions, such as how much credit should you give for a customer, should you ask for prepayment or should you say no for that particular customer.
Credit risk reports help businesses in estimating how much credit is sensible.
Credit rating symbolizes the risk of insolvency. It is usually calculated based on key figures in the annual report. Credit limit is the recommended maximum amount of credit one should give to a given customer. A low credit score may indicate that a company might not be able to meet its debt obligations, hence increasing the risk of insolvency and default.
About creditrisk.fi
CreditRisk.fi was created with the aim to help small business owners to make the best possible credit decisions. We aim to do this by providing information on credit risk estimation methods and detailed comparisons of some of the best credit risk report and service providers available. You can read more about credit risk estimation methods on our Methods page, and comparisons and reviews of credit risk reports can be found on our Report providers page.
Our reviews weigh the pros and cons of each credit risk report to make it easier for you to choose the best option. Other readers may want to share their opinion too and for that purpose there is a tool for rating each credit risk report tool.
There are always ways to improve this web page. If you find a mistake or want to leave feedback, you can contact us via email contact@creditrisk.fi or leave feedback on the contact page.