Notes Receivable

9 Months Ended

Sep. 30, 2022

Sezzle’s notes receivable comprise outstanding consumer principal and reschedule fees that Sezzle reasonably expects to collect from its consumers. Consumer installment payment plans typically consist of four installments, with the first payment made at the time of purchase and subsequent payments coming due every two weeks thereafter. As of September 30, 2022 and December 31, 2021, Sezzle’s notes receivable, related allowance for uncollectible accounts, and deferred net origination fees are recorded within the consolidated balance sheets as follows:


As of	September 30, 2022		December 31, 2021
Notes receivable, gross	$	107,489,312	$	162,341,675
Less allowance for uncollectible accounts:
Balance at beginning of year	(23,114,173)		(11,133,146)
Provision	(24,036,357)		(52,621,682)
Charge-offs, net of recoveries totaling $3,970,930 and $6,153,728, respectively	35,831,178		40,640,655
Total allowance for uncollectible accounts	(11,319,352)		(23,114,173)
Notes receivable, net of allowance	96,169,960		139,227,502
Deferred transaction income	(3,968,605)		(5,240,919)
Notes receivable, net	$	92,201,355	$	133,986,583

Sezzle maintains an allowance for uncollectible accounts at a level necessary to absorb estimated probable losses on principal and reschedule fee receivables from consumers. Any amounts delinquent after 90 days are charged-off with an offsetting reversal of the allowance for doubtful accounts through the provision for uncollectible accounts. Additionally, amounts identified as no longer collectible—such as when a consumer becomes deceased or bankrupt—are charged off immediately. Principal payments recovered after the 90 day charge-off period are recognized as a reduction to the allowance for uncollectible accounts in the period the receivable is recovered. Sezzle has not changed the methodology for estimating its allowance for uncollectible accounts during the nine months ended September 30, 2022.

Sezzle uses its judgment to evaluate the allowance for uncollectible accounts based on current economic conditions and historical performance of consumer payments. The historical vintages are grouped into semi-monthly populations for purposes of the allowance assessment. The balances of historical cumulative charge-offs by vintage support the calculation for estimating the allowance for uncollectible accounts for vintages outstanding less than 90 days.

Sezzle estimates the allowance for uncollectible accounts by segmenting consumer accounts receivable by the number of days balances are delinquent. Balances that are at least one day past the initial due date are considered delinquent. Balances that are not delinquent are considered current. Consumer notes receivable are charged-off following the passage of 90 days without receiving a qualifying payment, upon notice of bankruptcy, or death. Consumers are allowed to reschedule a payment one time without incurring a reschedule fee and the principal of a rescheduled payment is not considered to be delinquent. If consumers reschedule a payment more than once in the same order cycle they are subject to a reschedule fee.

Deferred transaction income is comprised of unrecognized merchant fees and consumer reschedule fees net of direct note origination costs, which are recognized over the duration of the note with the consumer and are recorded as an offset to Sezzle income on the consolidated statements of operations and comprehensive income (loss). Sezzle’s notes receivable had a weighted average days outstanding of 34 days, consistent with the prior year’s duration.

The following table summarizes Sezzle’s gross notes receivable and related allowance for uncollectible accounts as of September 30, 2022 and December 31, 2021:


As of	September 30, 2022						December 31, 2021
	Gross Receivables		Less Allowance		Net Receivables		Gross Receivables		Less Allowance		Net Receivables
Current	$	95,832,203	$	(3,443,270)	$	92,388,933	$	139,024,393	$	(7,989,217)	$	131,035,176
Days past due:
1–28	5,404,629		(2,175,022)		3,229,607		12,263,154		(5,126,611)		7,136,543
29–56	3,030,930		(2,523,216)		507,714		5,266,164		(4,267,236)		998,928
57–90	3,221,550		(3,177,844)		43,706		5,787,964		(5,731,109)		56,855
Total	$	107,489,312	$	(11,319,352)	$	96,169,960	$	162,341,675	$	(23,114,173)	$	139,227,502