Realistic “before and after” examples are essential for shifting ingrained habits. Below is a curated list of re-framing examples for common credit risks. These use linguistic anchoring to replace passive “mitigation” language with active “monitor–trigger–response” framing.
🔁 Reframing “Mitigation” Language in Credit Risk Write-Ups
Reframing & Anchoring to build new mental models
| Risk Type | ❌ Old Mitigation Language (Passive) | ✅ Reframed Monitoring Language (Proactive) |
|---|---|---|
| Customer concentration | “The company has long-standing relationships with major customers.” | “If any single customer contributing >20% of sales reduces orders by 10% or more over two quarters, it will trigger a revenue impact review and credit line recalibration.” |
| FX mismatch | “FX risk is mitigated by natural hedges and some forward contracts.” | “The CFO monitors USD/IDR weekly. A >5% move triggers a hedge coverage check and rebalancing of USD receivables exposure.” |
| Weak succession planning | “The owner has been managing the business for 30 years and is experienced.” | “If the CEO becomes unavailable or there is no named CFO by the next board cycle, the bank will re-evaluate counterparty continuity and control measures.” |
| Commodity price volatility | “Margins are protected as the company passes on costs to customers.” | “If gross margin falls below 18% in any month, this triggers a pricing review and working capital recalibration.” |
| Seasonal working capital swings | “Cash flow is seasonally tight in Q1, but the company manages it well.” | “If cash conversion cycle exceeds 120 days in Q1, we will increase AR monitoring frequency and assess need for interim facility draw.” |
| Regulatory change | “The company complies with all current regulations.” | “If a draft regulation enters consultation that affects 20%+ of product sales, management will escalate contingency planning within 30 days.” |
| Customer default risk | “The company deals only with established customers.” | “Any payment delay >30 days beyond terms triggers a credit policy review and bank notification.” |
| Raw material dependency | “The company uses multiple suppliers to reduce risk.” | “If the lead supplier’s pricing increases >10% or delivery delays >14 days, procurement is triggered to reallocate orders and review alternative suppliers.” |
| Key-man risk | “The management team is experienced and hands-on.” | “Absence or unavailability of the CEO/CFO for more than 2 weeks activates a delegated authority protocol and bank notification.” |
| Environmental risk (e.g., flood zone) | “The plant is insured against flood risk.” | “If water levels exceed risk thresholds during monsoon season, plant ops will implement relocation plan within 72 hours.” |
| Technology disruption | “The company is investing in IT systems.” | “If digital sales penetration remains <15% by year-end, the bank will re-evaluate the company’s competitiveness in digital channels.” |
🧠 Why This Works (Anchoring):
- The old language falsely signals control → It soothes reviewers but hides fragility.
- The new language introduces dynamic mental anchors:
- Trigger Benchmark = “When would we worry?”
- Response Protocol = “What would we do?”
- Ownership = “Who is watching?”
✅ Use in Practice: Credit Template Guidance
- Require each risk section to end with:
🟢 “This risk will be actively monitored. A trigger threshold of [X] will lead to [Y action] by [Z party].” - Examples for template prompts:
- “What data will signal this risk is emerging?”
- “What will the company or bank do in response?”
- “Who is responsible for monitoring and responding?”
