IFRS 9 ECL Calculator
for Retail

IFRS 9 Expected Credit Losses for Retail

Retail entities present a unique IFRS 9 ECL profile because the majority of their revenue is collected at the point of sale through cash, debit card, or credit card payments — meaning traditional trade receivables are relatively small compared to revenue. However, this does not eliminate the need for ECL assessment. Wholesale channel receivables (from distributors, franchisees, and corporate customers), concession receivables, loyalty programme credits, gift card breakage estimates, and receivables from online marketplace platforms all fall within the scope of IFRS 9 and require assessment under the simplified approach. The key challenge for retail auditors is identifying all receivable categories that require ECL measurement, including those that may not be immediately obvious in the financial statements.

Receivable Characteristics — Retail

Retail receivables can be categorised into several distinct streams with different credit risk profiles. Wholesale receivables from distributors and franchise partners typically carry standard commercial terms (30–60 days) and moderate credit risk. Corporate account receivables from business customers may have higher values but lower default rates due to established relationships. Concession receivables from department store or mall operators are generally low-risk but may be affected by the financial health of the host retailer. Receivables from online marketplaces and payment processors represent a growing category — these are typically settled within 7–14 days but can be affected by disputes, chargebacks, and platform insolvency. Loyalty programme credits and gift card liabilities may create receivable-like balances that require careful classification under IFRS 9 versus IFRS 15.

Forward-Looking Factors

Consumer confidence indices and retail sales data are the most relevant forward-looking indicators for retail ECL estimates. Declining consumer confidence typically precedes increased payment delays from wholesale customers and higher chargeback rates from consumer transactions. Unemployment rate forecasts are particularly important for retail entities with instalment payment plans or buy-now-pay-later arrangements. Seasonal factors are significant — ECL estimates prepared shortly after peak trading periods (Q4 for most Western markets) should consider whether the seasonal surge in receivables carries different credit risk than normalised balances.

Regulatory and Audit Context

Audit considerations for retail ECL are relatively straightforward compared to financial institutions, but auditors should verify that all receivable categories are identified and assessed. Common findings include: omission of marketplace receivables from ECL assessment, failure to separately assess wholesale and retail channels (which have materially different risk profiles), and inadequate consideration of seasonal concentration. For retailers with significant IFRS 16 lease portfolios, the interaction between lease receivables (if applicable as lessor) and trade receivables requires careful classification.

Retail entities with franchise operations should separately assess franchisee receivables, which may carry higher credit risk than standard wholesale receivables, particularly for new or underperforming franchise locations.