Credit Exposure
The total amount a seller stands to lose on a customer at a point in time, including open receivables and, in stricter definitions, unshipped orders and unbilled work.
Credit exposure is the answer to the question: if this customer failed today, how much would we lose? The narrow definition is open accounts receivable. The complete definition adds orders accepted but not yet shipped (which the seller may be contractually or commercially committed to fulfill), goods in transit, unbilled work in progress, and consigned inventory, minus any offsets such as deposits, credit insurance coverage, or amounts the seller owes the customer.
Exposure should be measured at the level where the risk actually lives. Multiple ship-to accounts, divisions, and affiliates of one corporate parent are, for insolvency purposes, often one risk; aggregating exposure across the corporate family is essential for any customer with multiple accounts. Concentration is the portfolio-level lens: a customer representing 15 percent of total receivables is a different category of decision than fifty customers at 0.3 percent each, even at identical risk grades, and deserves board-level visibility, insurance, or contractual protection.
Exposure is also the right denominator for control decisions. Credit limits cap exposure, not sales volume; holds trigger on exposure, not invoice count; insurance and security are sized to exposure. A credit function that can produce accurate, family-aggregated, order-inclusive exposure on demand is operating with instruments; one working from last week's AR trial balance is flying on memory.
Worked example
A customer has $180,000 in open invoices, $40,000 of orders picked but not shipped, and $25,000 in transit. Gross exposure is $245,000 against a $200,000 limit, even though the AR balance alone looks compliant. Order entry should be holding new orders now, not after the in-transit goods invoice.
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