A Guide to Securing and Recovery of Debt

A Guide to Securing and Recovery of Debt

Recovery of Debt

Lending money is crucial in modern business setups. Big business projects or personal projects are backed by huge debts with a promise of complete repayment. Financial setups throughout the world have a working model for the solicitation, disbursement and the recovery of debt. Debt is available in several forms and the most common form is that of the secured debt. The financial institutions provide a certain amount that is backed by some collateral that can help the recovery of the amount in case the debt is not settled in time.

How is debt secured?

A debt is secured when backed by any asset equal or greater than the amount given. In case of secured debt, a credit check is carried on just to confirm whether the loanee can be considered capable to handle the debt and repay it, whenever required. The collateral offered to secure a debt depends upon the type of the loan. Financial institutions usually work with properties including house, vehicles, certificate of deposit, savings or jewellery. Collaterals vary in case of commercial loans. Commercial loans offer natural reserves, securities, assets or real estate to the financial institution for securing the debt.

These secured debts are usually available at fewer interest rates. Since the loan is secured with a backup collateral, institutions consider minimal risk and provide loans at low rates. This security also makes large loan amounts a possibility. The repayment of such debts come with a much longer period, in most cases for a period of years, because the value of collateral matures over time as well. Credit unions, banks, lenders, act as sources for this kind of debt. The terms of each source might be different but the vetting period usually depends upon how big the debt is. The analysis for debt securing is thorough. The financial institutions make sure whether the transaction is worth it in the first place.

How to recover the debt?

In modern scenario, the most crucial problem of businesses is the outstanding debt. Amount tends to get stuck, in case the loanee acts irresponsibly or fails to pay back at the time. The recovery process becomes difficult and gobbles a lot of energy, resources and time. An escalation process is initiated in order to clear the outstanding payment.

  • Start with a reminder:
    In case, the payment is overdue, the first step is a courtesy reminder. The customer can be reminded with a phone call, a letter or an email. In many cases, the first contact is heeded by the customer and a prompt payment is made just after the reminder.
  •  Send an overdue payment reminder:
    If the initial contact stays unheeded, the institution proceeds further with another call or email to remind about the overdue payment and request for it. It is mandatory to let the customer know about the steps that might follow due to the sheer negligence for the debt settlement.
  • Send a final notice:
    A final notice clearly mentions the repercussions of missed payment deadlines. This contact is considered to be the first step to the legal procedure for recovering the debt. The final notice is the final stage of soft communication and a start to the formal recovery process.
  • Make personal contact:
    When there is no response to continuous letters and reminders, the next step is paying a personal visit. An officer from the financial institution visits the loanee and demands the settlement for debt. This step is usually one of the last resorts to debt recovery
  • Send a letter of demand:
    This is considered the final and last resort of communication on part of the financial institution. This letter warns about the proceedings that may follow. In case of secured loans, the loanee gets a fair warning about the collateral. This letter is issued with a stated time frame to make sure that the rest if proceedings are notified in advance.
  • Action:
    The financial institution hereby initiates required action to recover the loan. Secured debts are processed for the collateral auction in a bid to settle the loan amount.

Types of recoveries

On-time recovery of debts adds to the fiscal health of a company. Delinquent debtors can add to expenses and are exhaustive. Recoveries are initiated according to the nature of the debt. Consumer debt recovery is initiated against personal debts such as credit card debt, cell phone bills, medical debts, overdraft charges and much more. Commercial debt recovery is initiated against a debt taken for a product or service. The bad debt recovery is initiated against a written off uncollectible.

The ultimate solution- Debt Recovery Litigation

The recovery is the toughest and most time-consuming part of the debt management and it requires appropriate strategy based on the Creditor’s commercial, strategic, reputational and legal needs. Engaging a good Law firm which specialises in all aspects of debt recovery, from early issue of Legal Notice and payment negotiations through to debt recovery litigation before the appropriate court is the best solution to the problem. Such a Law firm makes sure that your time is saved and the efforts on your part are initiated/taken over by them with streamlined procedures and focus on early resolution/recovery. In such good Law firms the work is performed by qualified, experienced lawyers with extensive experience in both debt recovery and litigation so that you can simply focus on accelerated revenue instead of consuming energy chasing debts.