It stands for probability of default; in connection with the risk of default (associated with a loan or a credit arrangement), probability of default (PD) is the likelihood of default assessed in view of the prevailing market or economic conditions at a certain point in time (e.g., a reporting date). It is adjusted for estimates of future economic conditions that are likely to impact the possibility of default, over a given time horizon. It provides an estimate of the likelihood that a borrower will fail to meet its debt obligations.

Determination of probability of default depends on the applicable definition of default. For example, default can be considered using days past due, balance sheet default, cash flow default, and insolvency. Days past due reflect default when payables become increasingly delinquent or with lesser probability of collectibility. Delinquent payable accounts are grouped into 30-day buckets of increasing delinquency: 1) current: 1-30 days past due, 2) 31-60 days past due, 3) 61-90 days past due and 4) 91+ days past due. The last stage, when a credit becomes more than 91 days past due, a state of default is triggered.