The primary credit risk for the company is the risk of default by the client's customers, who are responsible for the payment of the accounts receivable. When the company advances cash against the receivables, it becomes susceptible to losses if the customers are unable or unwilling to pay their dues.

B is incorrect. While interest rate fluctuations can impact the profitability and cost of finance, they are related to market risk rather than the credit risk associated with accounts receivable financing.

C is incorrect. The client's overall financial stability is more of a counterparty risk. Although it may affect the ability to repay the company, it is not the direct risk assumed from the accounts receivable financing transaction itself.

D is incorrect. Operational risks pertaining to collecting accounts receivable relate to internal processes and systems; they do not encompass the risk of a customer default, which is the core concern in credit risk.

Things to Remember

• Credit risk in accounts receivable financing specifically refers to the possibility of the original debtor—the client's customer—failing to pay the receivable.
• Understanding and managing the creditworthiness of both the client and the client's customers is vital in this financial service to mitigate potential credit risk exposures.