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A risk profile is a summary assessment of the credit risk associated with a company. The profile is constructed from financial ratios, payment history, industry information, company structure and external factors such as market conditions. The goal is to combine various risk factors into a coherent picture. A risk profile is dynamic and can change due to changes in results, ownership structure or economic developments.
Within credit management, the risk profile is used as a basis for underwriting, limit setting and monitoring. It helps prioritize debtors under management and determine follow-up actions. A change in the risk profile can be cause to revise credit terms.
A company with low solvency and deteriorating payment behavior has an increased risk profile.
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