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What is a Credit Risk Report?

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  • Written By: Jim B.
  • Edited By: Melissa Wiley
  • Last Modified Date: 29 June 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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A credit risk report is a written assessment of the risk attached to extending a specific business partner some form of credit. Such a report is crucial information to a business that offers credit so that it may avoid debtors who default on credit obligations. Although the contents may vary depending upon how deeply the company purchasing it may wish to delve, a typical credit risk report includes the prospective business partner's credit rating as well as its credit history. Insurance companies or other companies that specialize in risk assessment generally prepare the reports, and they may be acquired to track businesses or individual customers.

Many of the business transactions that occur in the modern business world take place based on credit. This means that the buyer doesn't initially offer up all of the required funds to the seller, but instead promises to pay at some later date. Should the buyer fail to repay the debt, the seller would be left at a loss. For that reason, a business might want to attain a credit risk report on a potential customer to minimize its exposure.

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It is generally a good idea for a business to acquire a credit risk report on any new client to whom it might potentially offer credit. This is especially true if the sales to this new client have the potential to be significant. Such a large amount of credit could severely hurt the bottom line of the company offering it if the debtor defaults on repayment.

For that reason, a credit risk report is often an essential document to procure before credit arrangements are begun. The bedrock of most of these reports are credit ratings, which assign some sort of grade to the potential debtor. If a company has a particularly low rating, it means that it carries a significant risk that it may not be able to pay back its debts. These ratings are based on the past credit history of the company or individuals being assessed.

The contents of a credit risk report may include much more detailed information about a prospective credit partner. This information can be used by a company to determine whether to offer credit to this partner. If a potential business partner is risky, the company may avoid it completely, or it might adjust the terms of the credit arrangement accordingly. Companies that prepare these reports can cater them to the information its clients deem necessary to make informed credit decisions.

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