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Mitigating Techniques for Commercial Risk/Summary

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Unit 3.5-Mitigating Techniques for Commercial Risk 

Introduction | Commercial Banks | Loans | Letter of Credit | Draft Collection | Accounts Receivable | Governments | Factoring | Forfaiting | Banker's Acceptances | Credit Insurance | Summary | Resources | Activities | Assessment

Summary

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There are four types of risk responses a seller can take regarding nonpayment by the buyer:

  • Avoidance: Don’t sell on credit.
  • Transference: Ask a third party to assume the risk, such as the buyer’s bank.
  • Mitigation: Take precautions that reduce the probability that nonpayment will occur, such as performing a complete credit check.
  • Acceptance: Establish a contingency allowance for nonpayment accounts.

A credit manager can choose one or more of the techniques discussed in this lesson as a means of managing the risk of nonpayment.


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