Jasz
VIP Contributor
Credit risk management is an issue for every business. Credit risk is the possibility that a debtor will default on a debt. Credit risk management procedures should be designed to reduce the likelihood that a company will be subject to financial loss from credit losses. The aim of this article is to provide some general guidelines for managing credit risk in your business.
Credit risk management procedures involve establishing a policy for managing credit risks within your organization, setting up mechanisms for monitoring and evaluating the effectiveness of these policies, and taking steps to minimize exposure to known threats and vulnerabilities.
The basic components of any effective credit risk management program are:
1. A sound understanding of how your customers behave under different conditions;
2. A clear understanding of the potential financial impact of potential losses on your business;
3. A set of processes that can be used to identify, measure and monitor changes in customer behavior;
4. A system for managing potential losses through application of controls such as discretionary lending limits or other measures; and
5. Procedures for dealing with problems as they arise or when they become evident through review after an adverse event has occurred.
Credit risk management procedures involve establishing a policy for managing credit risks within your organization, setting up mechanisms for monitoring and evaluating the effectiveness of these policies, and taking steps to minimize exposure to known threats and vulnerabilities.
The basic components of any effective credit risk management program are:
1. A sound understanding of how your customers behave under different conditions;
2. A clear understanding of the potential financial impact of potential losses on your business;
3. A set of processes that can be used to identify, measure and monitor changes in customer behavior;
4. A system for managing potential losses through application of controls such as discretionary lending limits or other measures; and
5. Procedures for dealing with problems as they arise or when they become evident through review after an adverse event has occurred.
