Credit Risk For Business & Indivduals
Posted on February 16, 2008
Filed Under Uncategorized
There is potential credit risk for companies when they do not demand up-front cash payment for services or products. By first delivering the material wanted by the customer and putting up the bill later – there is inherent risk between the delivery and payment. Credit risk is not really manageable so far as small companies are concerned. These make the companies very vulnerable to payment delays or even default by the customers. Although some companies engage collection agency, its effectiveness has not been found satisfactory in totality. Since the creditor gets below agreed return, firstly for unsatisfactory collection and secondly due to the fact that the collection agency takes a cut for themselves from the collected amount.
Credit risk confronts an individual consumer in a direct form as depositor in a bank or as an investor and may be as a lender. An individual may face credit risk as they enter into any commercial transactions by providing deposits in favour of their counterpart say for real estate rental or purchases. Employees of any firm are exposed to the risk of their employer and depend on the firm’s ability to pay wages. In some case governments may enact various legal measures to safeguard the interest of consumers and for their protection.
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