The risk that customers will fail to make promised payments as they come due is

The risk that customers will fail to make promised payments as they come due is

• A. Market Risk
• B. Liquidity Risk
• C. Operational Risk
• D. Credit Risk

Answer: (D)

The concept here is credit risk—the chance that a customer will not pay what they owe as agreed. When a business extends credit or offers payment terms, it faces the possibility that some customers will default or make late payments, leading to losses or affecting cash flow. This differs from market risk, which comes from changes in prices or rates; liquidity risk, which is about not having enough cash to meet obligations; and operational risk, which stems from failures in processes, people, or systems. For example, unsettled accounts receivable or defaults reduce cash inflows and can increase bad debt expense. Managing this risk involves evaluating customers’ creditworthiness, setting credit limits, and diversifying the customer base. So, the risk described is credit risk.

The concept here is credit risk—the chance that a customer will not pay what they owe as agreed. When a business extends credit or offers payment terms, it faces the possibility that some customers will default or make late payments, leading to losses or affecting cash flow. This differs from market risk, which comes from changes in prices or rates; liquidity risk, which is about not having enough cash to meet obligations; and operational risk, which stems from failures in processes, people, or systems. For example, unsettled accounts receivable or defaults reduce cash inflows and can increase bad debt expense. Managing this risk involves evaluating customers’ creditworthiness, setting credit limits, and diversifying the customer base. So, the risk described is credit risk.