Coronavirus and Trade Credit: Impacts

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After weeks of quarantine and social isolation due to the coronavirus, some Brazilian cities are now beginning to gradually reopen their businesses , taking the necessary preventive measures against the coronavirus.

Still, it will take a long time until we return to “normal” retail operations, especially for those who sell on their own credit .

What happens to retailers who work with direct consumer financing?

How important are credit analysis tools at this time?

How can credit boost sales and bring customers to the store after reopening after coronavirus?

It was to address these issues that I decided to write this article and also record a video for our YouTube channel .

Click play and check it out!

YouTube video
Credit as a strategic tool in the post-coronavirus pandemic
Reopening businesses is something that, sooner or later, will end up happening in all Brazilian cities.

At this point, the first thing you should ask yourself is:

What strategic vision should my store have to resume business?

It is already clear to everyone that we will see a generalized drop in retail sales volume , hitting the clothing, footwear, optics and furniture segments hard.

What few people realize is that your own credit can be an excellent tool to boost your recovery .

This does not mean that we will have more credit sales from now on.

But yes, this payment method has great potential to mitigate the drop in sales.

In addition to bringing back to the store those who have outstanding payments, the installment plan is a very attractive financing alternative for consumers in a time of crisis.

I say this because we are already noticing some situations of reduction of consumer limits by banks and card operators.

Given these limitations, the demand for credit tends to grow.

I.e:

Increasingly, it is the granting of credit in the store itself that will enable these consumers to return to buying clothes, shoes, furniture, etc.

And what about defaulting on payments during the coronavirus crisis?
For those who manage their own credit operation, it is already clear that there will be an increase in consumer default in the short and medium term.

Our analysts here at Meu Crediário estimate that we will reach, on average, a default rate 30% higher than the pre-pandemic standard.

For example, imagine a store that was managing to keep its 90-day delinquency rate at around
3%.

For the coming months, retailers should plan for a 30% increase on this percentage, that is, something close to 4%.

Of course, I make this projection based on statistics from ios database stores that work with the Meu Crediário credit engine .

This is because in these cases we are able to understand exactly which customer profiles are likely to present the greatest increase in default risk.

With this information in hand, retailers who use our platform can “turn off the credit tap” only for those who have a high potential risk.

Therefore, if you do not have an efficient credit scoring model , the increase in default will certainly be greater than 30%.

Be extra careful with bad payers
Another trend detected by our team is an increase in risk among customers considered bad payers.

Our scoring model classifies customers into five different profiles, according to the credit granting risk calculated by the system.

Each of these profiles is identified by a letter from A to E.

We already know, for example, that profile E (very high risk) customers traditionally have a 90-day default rate of between 30% and 50%.

And we also know that this consumer will be the most responsible for the increase in default from now on, as their payment capacity will fall significantly due to the coronavirus crisis.

Therefore, here is the warning:

In the same way that credit can be a sales booster when businesses reopen , you will have to be much more careful when offering this payment method from now on.

Your credit will never be the same again!
When we analyze the scenarios involving credit risk and default after the coronavirus pandemic, it becomes clear that your store will only have good results if you know exactly who you are selling to.

The most important thing at this moment is to seek information.

And this includes carrying out a good analysis of the data in your database, with the aim of identifying potential good payers among customers with the lowest potential risk.

That's why I say: