Expected Credit Loss (ECL)

Accounts Receivable & Credit Management
Calculate expected credit losses for financial reporting and risk management. Essential for IFRS 9 compliance and setting appropriate credit loss provisions. Make informed decisions about credit exposure and pricing.
▦ Credit Risk Parameters
📘 How to Use This Calculator
Step 1: Enter the total amount at risk (how much money could be lost).
Step 2: Set the chance the customer won’t pay (Probability of Default).
Step 3: Set how much you’d lose if they don’t pay (Loss Given Default).
Result: See your expected credit loss and make informed decisions.
What is this? The total amount of money you could lose if the customer defaults (open invoices, credit limits, loan amounts).
Example: Customer owes €50,000 + has €50,000 credit limit ⇒ €100,000 EAD
2.5%Chance customer won’t pay
0.1% (Excellent)20% (High Risk)
What is this? Likelihood (percentage) that the customer will fail to pay.
How to estimate: Credit rating, payment history, financial health.
Benchmarks: Investment grade: 0.1–2%, Sub-investment: 2–10%, High risk: 10%+.
40%How much you’d lose
10% (Secured)100% (Unsecured)
ⓘ Simple Formula: ECL = Amount at Risk × Chance of Default × Loss %
Example: €100,000 × 2.5% × 40% = €1,000 expected loss
Use for: Bad-debt reserves, pricing decisions, credit policies
Σ Expected Credit Loss Results
Expected Credit Loss (ECL)
€0
0% of exposure
Expected Recovery
€0
Risk-Adj. Exposure
€0
🎯 Scenario Analysis
📈 Best Case Scenario
Economic boom: 50% lower default rate, 30% better recovery
€0
📉 Worst Case Scenario
Economic recession: 100% higher defaults, 30% worse recovery
€0
Why this matters: Economic conditions change. Planning scenarios helps set adequate reserves and adjust credit policies before problems occur.
⚠ Risk Assessment & Action Plan
✅ LOW RISK (ECL < 1%)
What this means: Excellent credit quality, very low chance of loss.
Action plan: Continue current credit policies; minimal reserves needed.
Pricing: Can offer competitive rates due to low risk.

Industry Benchmarks (PD %)

Investment Grade:
0.1% – 2%
Sub-Investment Grade:
2% – 10%
High Risk / Distressed:
10%+