by Dave Williams, Managing Director, S&P Capital IQ
Looking at credit risk through a variety of measures provides a more holistic view of credit worthiness than is common in traditional cash management and corporate treasurer practice. Taken together, a combination of measures can not only provide greater perspective on credit risk but also serve as the foundation for pre-emptive monitoring and credit policy frameworks.
Creating a framework view
Indeed, as the creditworthiness of an entity degrades, credit policies typically call for increased monitoring, reductions in exposure to the entity, or potentially triggering risk mitigation strategies such as moving to all cash transactions. Yet to do this many credit management policies rely on a single indicator of credit worthiness such as a traditional credit rating.