What are credit risks?

Credit risks are the risks that receivables with deferred payment to buyers and other business partners will be settled only partially or not at all. Buyer defaults are passed on to other economic operators through a chain reaction, which significantly worsens the assessment of timely inflows and creates additional costs of financing operations. In order to avoid payment indiscipline, other types of payment may be imposed to buyers, such as advance payments, bank guarantees, non-recourse factoring, and other financial instruments, but in many cases this way of doing business may result in either loss of competitiveness or excessive costs. In order to reduce the exposure to credit risks, companies may also take out trade credit insurance.