Which risk is inherent when companies frequently make late payments on their credit lines?

Which risk is inherent when companies frequently make late payments on their credit lines?

• A. Operational Risk
• B. Credit (Exposure) Risk
• C. Fraud Risk
• D. Systemic Risk

Answer: (B)

The risk that is inherent when companies frequently make late payments on their credit lines is indeed credit (exposure) risk. This type of risk stems from the possibility that the company may default on its financial obligations or consistently fail to meet payment deadlines. When a company makes late payments, it can negatively impact its credit rating and the trust that lenders and creditors have in its financial stability. Persistent late payments signal to lenders that there might be cash flow issues or overall financial health challenges, which can result in higher interest rates, reduced credit limits, or even the loss of access to credit altogether. Additionally, this behavior can lead to a cycle of increasing costs and a further decline in creditworthiness. These factors underscore the essence of credit risk, as it captures the heightened likelihood of defaults and the financial repercussions associated with poor payment histories.

The risk that is inherent when companies frequently make late payments on their credit lines is indeed credit (exposure) risk. This type of risk stems from the possibility that the company may default on its financial obligations or consistently fail to meet payment deadlines. When a company makes late payments, it can negatively impact its credit rating and the trust that lenders and creditors have in its financial stability.

Persistent late payments signal to lenders that there might be cash flow issues or overall financial health challenges, which can result in higher interest rates, reduced credit limits, or even the loss of access to credit altogether. Additionally, this behavior can lead to a cycle of increasing costs and a further decline in creditworthiness. These factors underscore the essence of credit risk, as it captures the heightened likelihood of defaults and the financial repercussions associated with poor payment histories.