| Credit risk refers to the potential threat to an organization’s financial stability and operational resilience when a borrower, customer, or counterparty fails to meet contractual obligations or make payments as agreed. It represents the possibility of financial loss arising from defaults, delayed payments, or non-performance under a credit agreement. Credit risk becomes especially critical when third parties are involved in financial services functions such as loan origination, financing, customer onboarding, account management, or collections, as their actions directly impact credit quality, regulatory compliance, and overall portfolio performance. Effectively managing credit risk helps safeguard cash flow, protect profitability, and maintain long-term business sustainability. |
