Trade credit risk

What is trade credit risk?

Trade credit risk is the risk a business takes on when it sells goods or services on payment terms — invoicing a customer now and being paid later. If the customer pays late or defaults, the seller absorbs the loss. It is the most common form of credit risk for non-financial companies.

In the UAE’s B2B economy, where net terms and project milestones are routine, trade credit risk is everywhere — and a buyer that looks healthy can still be the subject of judgments or enforcement actions that signal payment trouble ahead.

Managing it means setting credit limits and terms based on a counterparty’s real risk, which is why a check of its litigation and regulatory history before extending terms is more useful than its marketing or its balance sheet alone.