Client Credit / Bad-Debt Exposure
What is my expected credit loss exposure on this client?
This is an expected-value exposure estimate from rates you enter, not a fabricated credit score. Use your own historical write-off rate or a credit-insurance quote as the input.
Why this comes up
Not every client is equally likely to pay in full, and treating credit risk as zero for every account overstates real profitability on your riskier ones. This engine puts a number on expected credit loss, using either a simple loss rate or a more granular probability-of-default-times-severity model, entirely from your own data, never a fabricated credit score.
How we calculated this
Simple mode: Expected Credit Loss = Receivable Exposure x Expected Loss Rate Advanced mode: Expected Credit Loss = Receivable Exposure x Probability of Default x Loss Given Default
Worked example, simple mode: $50,000 receivable exposure, 2% expected loss rate.
Expected Credit Loss = 50,000 x 0.02 = $1,000
Worked example, advanced mode, same exposure: 5% probability of default, 40% loss given default.
Expected Credit Loss = 50,000 x 0.05 x 0.40 = $1,000
Both modes agree here because 5% times 40% equals the same 2% implied loss rate used in simple mode, that won't always be true; advanced mode is more accurate when you have real default-probability and severity data that don't reduce to a single flat rate.
What this means
- Simple mode is fast and fine when you have a reliable blended loss-rate figure from your own write-off history. Advanced mode is more accurate when default probability and loss severity genuinely differ by client and you have real data for both.
- This is an expected-value figure across many accounts or over time, not a prediction for any single invoice; a specific client either pays in full or doesn't.
- Feed this figure directly into Staffing Client Profitability or New Client Contract Go/No-Go rather than leaving credit risk at zero.
Common mistakes
- Leaving expected credit loss at zero for every client by default, overstating profitability on your riskier accounts.
- Using an industry-average loss rate instead of your own agency's actual historical write-off experience.
- Confusing this expected-value figure with a prediction about any one specific invoice or client's payment outcome.
Frequently asked questions
Where do I get a reliable loss rate?
Your own historical write-off rate as a percentage of receivables is the most direct source; a credit-insurance quote or a commercial credit report can also inform the figure for a specific client.
Should every client use the same loss rate?
No, if you have client-specific information (payment history, credit report, industry risk), use it; a blanket rate across all clients hides real variation in risk.
How does this feed into a go/no-go decision?
See New Client Contract Go/No-Go, which optionally includes credit exposure as one of its independently evaluated criteria.
Limitations
This never fabricates a credit score. Use your own historical write-off rate, a credit-insurance quote, or a commercial credit report's figures as the input; the engine only does the arithmetic on what you enter.
Next decision
Learn more
Client Concentration Risk for Staffing Agencies — how concentration and credit exposure compound on your largest clients specifically.