how it works and what is the importance

For decades, parceling purchases has been a recurring habit in the financial life of Brazilians. If, on the one hand, extending the deadline for payment is a way to boost sales, on the other, this increases the credit risk of companies, especially in times of high interest rates.

A survey conducted by the National Confederation of Shopkeepers (CNDL) and Credit Protection Service (SPC Brazil) pointed out that 42% of respondents had installments in credit card, credit or postdated check at the end of 2024. These data, according to the CNDL, led to the estimate of 68.7 million consumers with installments in January 2025.

And here comes the installment pix, which should be launched in September 2025, as released by the Central Bank. With so many facilities to buy, credit risk management is increasingly important for the company to maintain its financial health.

Next, learn more about this important concept for the financial management of an organization.

What is credit risk?

Credit risk is nothing more than the possibility that the debtor of a negotiation does not honor the payment of part or total of its debt.

It is virtually impossible to make a totally risk free sale, as no one is free of financial unforeseen events. However, excessively high default can lead to serious problems with a company. Without receiving the money from sales and with commitments by winning every month, it probably has to resort to bank financing, which may further aggravate the financial imbalance of the operation.

Is credit risk the same as financial risk?

In truth, Credit risk is one of the five components of a company’s financial risk. The other four are: risk of liquidity, market risk, operational risks and legal risks.

The risk of liquidity refers to the easily the organization to pay commitments such as salaries, suppliers, taxes and others related to the operation. For this, it is important to have one that covers these payments.

Already the market risk has to do with the oscillations of the economic scenario. Inflation, change in interest rates, volatility of financial assets and other factors that move the market are also reflected in the financial risk of companies.

Operational risks are those that directly impact company activity. Among them are possible failures in production, inadequate processes, human errors, or even facts beyond the context of the business – such as natural disasters or cyber crimes, for example.

Finally, legal risks are those that cause damage to the organization for reasons related to the legal system. Poorly elaborate contracts, non -compliance with labor laws, environmental problems, copyright and fraud violations are some examples of this type of financial risk.

CREDIT RISK EXAMPLES

As we have seen, all kinds of credit involving credit is subject to risk to a greater or lesser extent depending on the case.

A classic example is retail, as sales financing is one of the main differentials of companies in the segment. To conquer the customer, many retailers enter price wars and deadlines, which enhances credit risk.

Another example is some easy bank loans, focusing on certain client profiles (retired, pensioners, civil servants and so on). Often the ease of access to these credit lines causes over -indebtedness, which easily leads consumers to default.

How is credit risk analysis done?

The first step is to collect information about the credit applicant. Identification data (CPF/CNPJ), information on equity, income, debts and payment history is required at this stage.

With this, you can already analyze the risk of credit. Normally, companies and financial institutions often observe five basic aspects in the risk assessment, popularly known as 5 cs of credit. They are:

Character

One of the most important pillars of credit, the character is related to the reputation of the person as a Payer.

Basically, this aspect covers the history of the credit borrower. This includes not only the punctuality in payments, but also the relationship of the person or company with indebtedness in general – if it usually uses loans and financing in a stretch manner, what is the volume of installment purchases, and so on a day.

Capacity

Already the capacity evaluates the relationship between income generation and the expenses of those who receive the credit. For example, those who have a stable and sufficient income to cover basic expenses and eventual financing assumed, theoretically have good credit capacity.

Capital

Capital considers all the resources from which the debtor has to honor the credit he received. In the case of individuals, this includes financial, real estate and other assets that form assets. As for companies, we can consider items such as equity, equipment and inventories, for example, as part of capital.

Conditions

Credit conditions concern the purpose of credit and the economic context more broadly.

Here comes an analysis of the purpose of the operation itself, that is, how the person or the company will use the resources – working capital, expansion of activity, investment in any specific project, or any other purpose. Along with this, it is necessary to evaluate specific aspects of negotiation, such as interest rate and term, as this also influences credit risk.

Collateral

Finally, collateral refers to guarantees that can be requested to mitigate the credit risk of an operation. Goods, financial applications or guarantees of third parties (such as bail) can give more security and reduce the chances of default.

Who assumes the credit risk of a company?

The granting of credit (financial institutions, suppliers, investors or other creditor) is the one who is exposed to the risk of the debtor, whether he is an individual or company.

As we have seen, depending on the situation, guarantees may be requested in a credit operation. In the case of guarantee or guarantee insurance, for example, if the debtor does not pay the insured, he may call the guarantee to be compensated for default.