Reducing default and increasing sales: how one affects the other

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Those who sell on credit know that there are many indicators to monitor, which often leaves store owners quite confused. Some stores, for example, seek to reduce default rates.

This means that they are working, but they have a very high default rate, they don't know what to do, they have difficulty adjusting the operation and they want to try to resolve this.

On the other hand, other stores are looking to increase sales. That is, they are selling, but they realize that they could sell more, among other possible situations in search of profit.

Initially, what we can already notice is that these two issues complement each other. There may, however, be a difficulty in maintaining the balance.

With that in mind, in this article, I chose to talk facebook database about 2 ways you can view your store's credit, considering two situations:

Increase revenue by giving up default
Reduce default without sacrificing revenue
To clarify this relationship, you can watch the video or continue reading. Let's go!

YouTube video
Reduce default or increase sales?
When default rates are high, the retailer is probably in a higher risk area or does not know how to sell, and is not in a position to analyze credit to make a safe sale.

However, this is still someone who really likes to sell on credit, who seeks, encourages, runs promotions and ends up suffering from default.

There are others who want to sell more on credit, but are afraid. Usually, these people have their defaults under control precisely because they are conservative when granting credit. As a result, they end up keeping their operations stable and are unable to increase sales.

When we talk about chain stores, this situation has yet another complicating factor. There can be a large difference in the default rate of each store within the chain. Sometimes, for example, one store has a 2.5% rate while another has a 7% rate. For this reason, it is difficult to organize.

In this situation, the ideal is to determine what default rate you want for your store . It could be an average default rate of 3.5% to 4%, for example. Let's suppose that today you have 6% and you want to lower it to the percentage mentioned above. The option to achieve this is to sacrifice sales.

What do I mean by all this? Anyone who has inadequate default, without using a system, is leaving money on the table! That's where the advantages of the system with an automated model come in…

Advantages of an automated credit model
When we think of a credit model with simple rules, we treat it in a very subjective way, we are not exploring the full potential that the customer has in the credit plan.

This is what I usually call horizontal rules, which is when the store treats all customers by applying the same rules, such as: checking the credit bureau, verifying the customer's income – the payroll –, among others.

An automated model, on the other hand, such as Meu Crediário, checks horizontally and vertically. We thus evaluate the customer's risk profile, which can generate a sale, for example, to someone who has a negative credit rating but still presents a low-risk profile.

If the customer is trying to buy in 6x, but the store only does it in 4x, and we identify it as low risk, we release it and recommend the sale in 6x.