Payout timing and customer promises

Figure 01 / 12

Separate probability, severity, and exposure

The simplified one-year expected loss is PD × LGD × EAD = $8,008.00. PD is 3.20%, LGD is 55.00%, and EAD is $455,000. This is a teaching expected-value calculation, not an accounting allowance method or a capital standard.

Figure data and text version

Input	Value	Unit
PD	3.2	Percent over one year
LGD	55	Percent of exposure lost conditional on default
EAD	455,000	USD at default
Expected loss	8,008	USD over the stated horizon

A merchant’s payout schedule interacts with delivery, refunds, and available resources. Delaying funds can reduce one exposure while creating operating pressure for a sound business.

The reference case starts with the stated population and a functioning evidence path. The owner is risk operations.

All amounts, rates, capacity limits, and outcomes in this case are synthetic. The three conditions are separate assumptions for comparison. A better result in the response condition is not measured proof that the proposed control causes that improvement. The figures expose the calculation and its limits; a real deployment needs its own evidence.

Read the result

The case has $455,000 of exposure. Its stated one-year PD and LGD imply $8,008.00 of expected loss, while the cover analysis leaves $299,000.00 of stress exposure. Monthly cash coverage is 1.12×. These are separate measures: one describes an average under probability assumptions, one describes available cover, and one describes a period’s funding capacity.

Figure 02 / 12

Probability and severity move the result together

Each cell is the same exposure multiplied by the row default probability and the column loss severity. The grid makes joint stress visible. A downturn can affect both factors; the calculation does not assume that the two causes are independent.

Figure data and text version

PD	LGD 25%	LGD 50%	LGD 75%
2%	2,275	4,550	6,825
5%	5,687.5	11,375	17,062.5
10%	11,375	22,750	34,125
20%	22,750	45,500	68,250

Figure 03 / 12

Recorded collateral and eligible cover

The collateral record is $110,000, but a 20% illustrative haircut leaves $88,000.00 eligible in this scenario. Reserve cover adds $68,000. The resulting uncovered exposure is $299,000.00. Eligibility also needs enforceability and operational access; this arithmetic does not establish either.

Figure data and text version

Measure	USD
Recorded collateral	110,000
Eligible collateral	88,000
Recorded reserve	68,000
Combined usable cover	156,000
Uncovered exposure	299,000

Figure 04 / 12

Cash available for the period’s debt service

Defined cash available is $25,200.00 against $22,400.00 of debt service, for a 1.12× ratio. The ratio uses one period and one defined cash measure. It does not establish affordability, suitability, or a required underwriting threshold.

Figure data and text version

Component	USD	Meaning
Cash available	25,200	After the expenses included in this illustration
Debt service	22,400	Principal and interest due in the same period
Cash after debt service	2,800	Negative means a modeled shortfall

Figure 05 / 12

A constant-hazard illustration

The curve converts the stated one-year PD of 3.20% to a constant monthly hazard using h = 1 − (1 − PD)^(1/12). Survival after 12 months is therefore 1 − PD. Constant hazard is an assumption; seasonality and changing exposure are omitted. Horizontal positions are the labeled observations or scenarios; equal spacing does not imply equal numerical increments.

Figure data and text version

Months since start	Survival %
M0	100
M2	99.46
M4	98.92
M6	98.39
M8	97.86
M10	97.33
M12	96.8

Figure 06 / 12

Cumulative expected loss at comparable age

This curve multiplies cumulative modeled default probability by a fixed EAD and LGD. It is useful for separating observation age from the chosen assumptions. It omits amortization, recoveries over time, prepayment, and changing utilization. Horizontal positions are the labeled observations or scenarios; equal spacing does not imply equal numerical increments.

Figure data and text version

Age	Expected USD
M0	0
M2	1,352.82
M4	2,698.32
M6	4,036.55
M8	5,367.55
M10	6,691.35
M12	8,008

Figure 07 / 12

Expected loss sensitivity to PD

Exposure stays at $455,000 and LGD stays at 55.00% while PD changes. The linear relationship follows the simplified expected-loss formula. It is not evidence that real-world losses respond linearly to economic stress. Horizontal positions are the labeled observations or scenarios; equal spacing does not imply equal numerical increments.

Figure data and text version

One-year PD	Expected USD
1%	2,502.5
3%	7,507.5
5%	12,512.5
8%	20,020
12%	30,030
20%	50,050

Figure 08 / 12

A shared dependency can dominate exposure

The four amounts are disjoint portions of this case’s exposure. The largest bucket represents one shared supplier, funding source, or other specified dependency. Counting customers alone would not reveal this common loss driver.

Figure data and text version

Dependency bucket	Exposure USD
delivery and payout timing — primary	182,000
Independent group B	136,500
Independent group C	91,000
Independent group D	45,500

Figure 09 / 12

A weak month can disappear inside an average

The six-month path applies explicit seasonal factors to the defined monthly cash amount and compares it with fixed debt service. These are constructed cash assumptions, not a forecast. A negative month needs a funding or terms response even when the average ratio looks comfortable. Horizontal positions are the labeled observations or scenarios; equal spacing does not imply equal numerical increments.

Figure data and text version

Month	Cash available	Debt service
M1	17,640	22,400
M2	21,420	22,400
M3	27,720	22,400
M4	22,680	22,400
M5	32,760	22,400
M6	28,980	22,400

Figure 10 / 12

Terms belong in the decision record

This record concerns match payout timing to customer promises. A binary approval omits the amount, observation horizon, cover assumptions, and review trigger. Retaining those terms makes the decision reproducible and identifies when changed facts require another assessment.

Figure data and text version

Field	Illustrative value
entity	Payout timing and customer promises
exposure_usd	455,000
horizon	One year for PD; one month for cash coverage
pd_percent	3.2
lgd_percent	55
review_trigger	A blanket delay is applied without measuring fulfillment or cash needs.

Figure 11 / 12

One cause can affect several loss components

The stress path connects delivery and payout timing to repayment cash, default probability, recovery, and funding needs. Arrows state the scenario’s assumed causal chain. They are hypotheses to test with evidence, not proof that every affected customer will default.

Figure data and text version

Stage	Mechanism
Dependency shock	A blanket delay is applied without measuring fulfillment or cash needs.
Cash pressure	Receipts fall or essential payments move earlier
Default and severity	Repayment probability and recovery can both worsen
Response	Reassess terms, usable cover, and exposure within the approved process

Figure 12 / 12

Expected loss, uncovered exposure, and cash gap

Expected loss ($8,008.00), uncovered exposure ($299,000.00), and monthly cash gap ($0.00) answer different questions. The bars are deliberately separated measures and must not be added. A low expected value can coexist with a large stress exposure.

Figure data and text version

Measure	USD
Expected one-year loss	8,008
Uncovered stress exposure	299,000
Monthly cash gap	0

Connect the result to the system

Compare the loss path, usable cover, timing, and customer impact under stated terms.

Check the population, evidence, permitted action, and actual effect together. A balanced calculation can still use the wrong population; a successful response can still leave an unknown financial outcome. The case’s numerical result applies only to its stated assumptions.