Glossary · Credit management
Credit risk
Credit risk is the chance that a customer pays late or never pays for what you have already delivered.
Any time you deliver before being paid, you take credit risk. It has two parts: the risk of default (the customer never pays, usually because it fails) and the risk of slow payment (the customer pays, but late enough to strain your cash).
The amount at stake is your exposure — everything the customer owes plus work in progress you haven’t billed yet. Concentration matters: one customer making up a third of your receivables is a bigger risk than ten customers making up the same total.
Suppliers manage credit risk by checking customers before extending terms, setting credit limits, asking for deposits or guarantees, billing in stages, insuring receivables, and following up quickly when payment slips.
Example
A studio’s largest client owes €48,000 of its €120,000 receivables. If that client failed, the studio would lose 40% of what it is owed, so it moves the client to monthly billing to cap the exposure.