Mitigating Techniques for Commercial Risk/Summary

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 Go to Unit 3.1 | Unit 3.2 | Unit 3.3 | Unit 3.4 | Unit 3.5 Return to Trade Finance Module 3: Commerical Risk

Summary

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.