Credit Risk

Credit Risk in foreign trade specifically refers to the possibility that a counterparty (buyer or seller) fails to fulfill payment or delivery obligations, causing losses to the other party. It runs through the entire trade process, and is most prominent when using open account (O/A), documents against acceptance (D/A), and other credit terms. Unlike 'country risk' or 'exchange rate risk', credit risk is directly related to the solvency and willingness of the buyer or bank. Usage scenarios include: exporters assessing whether to accept a new customer's credit request, banks reviewing the creditworthiness of letter of credit applicants, and credit insurance companies underwriting accounts receivable. Precautions: Enterprises should establish customer credit files and dynamically monitor them using tools such as D-U-N-S numbers and bank credit reports; reasonably use letters of credit (L/C), advance payment, credit insurance, or factoring to transfer risk; clearly specify payment terms, liquidated damages, and dispute resolution clauses in contracts. Distinction: Credit risk focuses on counterparty default, while commercial risk covers changes in market supply and demand, and political risk stems from government actions. Comprehensive credit risk management requires combining pre-assessment, in-process monitoring, and post-event recovery.