Mitigating Techniques for Commercial Risk/Summary

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.