Mitigating Techniques for Commercial Risk/Summary
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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.