What is default probability in SAP IS-B-RA-CL - Default Risk and Limit System?

SAP Term: default probability

• Component: IS-B-RA-CL

• Component Name: Default Risk and Limit System

• Description: Probability that, within a given period, a counterparty/issuer will not fulfill or only partially fulfill his/her obligations timely, or will become insolvent. &EXAMPLE& In country risk, the default is usually defined as a rescheduling or waiver, as here the lender usually accepts a loss of the present value of the receivable.

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• Key Concepts: 
  Default probability is a risk assessment tool used in the IS-B-RA-CL Default Risk and Limit System. It is used to calculate the probability of a customer defaulting on their payments. This calculation is based on the customer's creditworthiness, payment history, and other factors. 
  
  How to use it: 
  The default probability is calculated by the system based on the customer's creditworthiness, payment history, and other factors. The system then assigns a risk rating to the customer based on this calculation. This risk rating can be used to determine whether or not to extend credit to the customer. 
  
  Tips & Tricks: 
  It is important to keep in mind that the default probability calculation is only one factor in determining a customer's risk rating. Other factors such as the customer's financial stability and payment history should also be taken into consideration when making a decision about extending credit. 
  
  Related Information: 
  The IS-B-RA-CL Default Risk and Limit System is part of SAP's Business Suite software package. It is designed to help businesses manage their risk by providing an automated system for calculating default probabilities and assigning risk ratings to customers.