Counterparty risk is the risk that the other party to a contract will fail to meet its obligations - financially, operationally, or contractually. It includes credit risk, performance risk, and reputational risk.
Assessing counterparty risk
Financial health (credit ratings, payment history), operational stability (business continuity, key-person risk), regulatory posture (compliance history, ongoing issues), and market exposure (industry cycle, competitive position).
Concentration considerations
Exposure to any single counterparty across a portfolio is often larger than any individual contract suggests. Contract data aggregated by normalized counterparty reveals the true concentration - which many organizations underestimate.
