Dilution Risk

From Open Risk Manual

Definition

Dilution Risk denotes the risk that an amount receivable is reduced through cash or non‐cash credits to the obligor[1] Dilution risk is particularly important in the context of Securitisation of receivables (and Supply Chain Finance more more generally) as it reduces the cashflows available to service liabilities.

Examples

The term dilution is used broadly to refer to any non-cash reduction to a receivable balance that is not attributable to default or write-off. [2]

  • Product Returns
  • Cash Discounts
  • Advertising Allowances
  • Volume Rebates
  • Loyalty Programs
  • Pricing Disputes

References

  1. Directive 2006/48/EC Of the European Parliament and of the Council
  2. Standard & Poors, Structured Finance, Trade Receivable Criteria

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