Installment Sales: Work with “Short Sheet”

[jisansorkar8990]

You and I know how hard it is to sleep in a bed with a short sheet without getting cold, right? Basically, you have to choose between covering your feet or your head , knowing that one of these parts will be unprotected. This also happens in stores that sell on credit .

If you adopt a stricter credit policy with the aim of reducing the risk of default, you end up selling less.

And if you relax credit granting criteria to sell more, you end up increasing default.

Many retailers come to us looking for a solution to this dilemma.

And, in part, they succeed.

Because with the Meu Crediário system they have a tool capable of balancing their credit granting based on statistics and data analysis.

Even so, it is important to understand that there is no way to have 100% coverage when working with installment sales on the booklet. Do you want to understand why?

In the following video I explain better. Just click play!

YouTube video
There is not enough sheet
As you can see in the video, whenever we need to define credit policies for a store, we have to remember the story of the “short sheet”.

Because there really isn't enough cash for your store to have zero job seekers database default and sell to all customers who want to open a credit account.

It is necessary to understand that one of these points will remain uncovered , whether it is the result of installment sales or control of default .

So you need to balance the credit analysis process and figure out how to sell more with the lowest possible default rate.

Note that I said “possible,” not “ideal.”

It is at this point that we realize the importance of the credit score and the credit policies themselves within your credit operation.

Therefore, before proceeding, we need to understand the difference between these two concepts.

Are credit scores and credit policies the same thing?
Many people confuse these two tools, but each of them has a very specific function to perform within your credit account.

The credit score allows the store to classify customers according to their risk of default.

It is extremely important for analyzing the entire mass of data that the store has collected containing information about customer behavior.

It is with this information that you will build your credit policy , containing the rules to control the coverage of the credit “sheet”.

I'll give you a very practical example.

Suppose your store wants to sell to customers with the letter E profile (high risk).

To achieve this, you will need to relax your credit account opening rules a little.

And there's no way around it. By doing this, the store's default rate will increase.

So something needs to be sacrificed to bring this default rate to the level the store is seeking.

And how to do this?

You may identify another credit policy with a high potential to generate default and try to reduce the risk by making it stricter or simply eliminating it.

So if your store decides to start selling to customers with profile E, it might be a good idea to stop the policy of leaving the first payment due date at 100 days.

This is just an example to make it clear that you can only increase the risk in one policy if you can reduce it in another.