After receiving a loan, it is custom for the borrower to pay back the loan by making monthly payments until the balance is $0. If the borrower misses an obligatory payment on a pre-determined due date, the borrower and/or account may be considered delinquent. There are two ways to measure delinquency (the failure to pay a debt). You can view the delinquency via the recency or contractual concept. Consider how both recency delinquency and contractual delinquency are measured:
- Recency delinquency is calculated by when the most recent, qualifying payment was made on the loan. For example, if the delinquent borrower makes one qualifying payment, he is not considered delinquent anymore.
- Contractual delinquency is calculated by the number of missed payments that have accrued. The delinquent borrower will not be in good standing with the loan company until he has caught up on his loan payments.
Let’s take a look at three best practices to encourage delinquent borrowers to pay:
1. Charge Late Fees
If your borrower has not made their payment in time, it’s common for loan companies to charge a late fee as allowed by their state’s regulations. This will hopefully get your borrower’s attention and nudge them toward making their payments on time to avoid this charge.
2. Set Up a Payment Plan
If the delinquent borrower was laid off or is suffering from an illness, it might be difficult for him to make payments. Your company may be able to increase the likelihood of regaining the borrowed money by offering to set up a payment plan at a lower amount each month. Working with the borrower can help both parties achieve their goals.
3. Be Clear & Respectful
As you proceed with reaching out to the delinquent borrower, proceed respectfully and with clear instructions. Money can be a sensitive topic, especially if it concerns the failure to pay a debt. Stay professional and respectful while offering solutions.
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