Buy now pay later company Sezzle made a provision of US$22.4 million for uncollectable accounts in the six months to June – equivalent to a little under half its income for the half-year and 22 per cent of its receivables.

The provision is more than four times the provision it reported in the previous corresponding period and was a significant contributor to the company’s June half loss of $26.6 million on revenue of $46.4 million.

By way of explanation for this remarkable level of uncollectable accounts, the company said it is still working on its approach to risk assessment.

According to the financial report: “Beginning in the second half of 2020 and continuing into the first half of 2021, we’ve continued to perform universe expansion testing with our new enterprise merchants, which allowed us to test various credit underwriting strategies on larger merchants, resulting in higher provisions.”

Elsewhere in the financial report, the company says: “A critical component of our business model is the ability to effectively manage the repayment risk inherent in allowing consumers to pay over time. To that end, a team of Sezzle engineers and risk specialists oversee our proprietary systems, identify transactions with elevated risk of fraud, assess the credit risk of the consumer and assign spending limits, and manage the ultimate receipt of funds.”

It appears that Sezzle’s engineers and risk specialists are not managing the ultimate receipt of funds all that well.

The company, which operates mainly in the United States, reported underlying merchant sales of US$786.2 million during the June half – an increase of 156 per cent over the previous corresponding period.

Active merchant numbers rose 150 per cent to 40,274 and active customer numbers rose 96 per cent to 2.9 million.