The Procurement Glossary » Credit Rating

Credit Rating

Finance & Payments

Definition

An assessment of an entity's creditworthiness — its likelihood of meeting financial obligations.

Explanation

Buyers check supplier credit ratings to gauge financial stability and failure risk, especially for critical or sole-source suppliers. A deteriorating rating is an early warning to line up alternatives or tighten terms.

Example

A drop in a key supplier's credit rating prompts the buyer to qualify a second source.

Related terms

• Financial Stability Assessment — An evaluation of a supplier's financial health to gauge the risk that it fails or cannot meet commitments.
• Supplier Risk — The exposure a buyer faces from a supplier's potential failure — financial, operational, compliance or reputational.
• Credit Terms — The conditions under which a supplier extends trade credit to a buyer, including limit, period and any security.
• Due Diligence — The investigation of a supplier's legitimacy, capability, financial health and compliance before engaging it.

Frequently Asked Questions

What is Credit Rating?

An assessment of an entity's creditworthiness — its likelihood of meeting financial obligations. Buyers check supplier credit ratings to gauge financial stability and failure risk, especially for critical or sole-source suppliers. A deteriorating rating is an early warning to line up alternatives or tighten terms.

Can you give an example of Credit Rating?

A drop in a key supplier's credit rating prompts the buyer to qualify a second source.

Back to the procurement glossary | Procurement concepts | Contact us