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Collection Policy For Lending

Updated on February 15, 2016

In order to keep the money rolling, there must be an established effective collection policy. Through collection, volume of cash is increased, more cash can be

According to forbes.com, there are 5 C's in lending business, Character, Collateral, Capacity, Capital and Credit score. It is very important to deeply know your debtors before granting them loans to avoid evergreen accounts. When worst comes to worst that you need to send notices to your debtors, then you need to go back to your collection policy.

In order to keep the money rolling, there must be an established effective collection policy. Through collection, volume of cash is increased, more cash can be used for operation and past due rate can be lessen.

The loan officer must prepare an aging of accounts monthly to establish the master list of delinquent members. This shall be reported to Board of Directors regular meeting.

The loan section is responsible for collecting and sending of notices accompanied with Statement of Accounts prepared by the bookkeeper. The suggested guidelines for meeting these requirements are illustrated on the following table.

Flow chart for Lending

15 days before due date a reminder letter signed by loan officer will be sent to the borrower.

Accounts aging 1-30 days past due with an amount of P 1-4,999 shall be notify by 1st demand letter prepared by the Loan Officer. Those accounts amounting to P5,000.00 and above shall be notify by 1st demand letter prepared by the Loan Officer and a phone call inviting to visit the office to negotiate.

Accounts aging 31-59 days past due with an amount of P 1-4,999 shall be notify by 2nd demand letter prepared by the Loan Officer and noted by the Manager. Those accounts amounting to P5,000.00 and above shall be notify by 2nd demand letter prepared by the Loan Officer and noted by the Manager and a phone call inviting to visit the office to negotiate.

Accounts aging 60-90 days past due with an amount of P 1-4,999 shall be notify by final demand letter signed by the Manager and noted by Credit Committee Chairman. Those accounts amounting to P5,000.00 and above shall be notify by final demand letter signed by the Manager and noted by Credit Committee Chairman and a phone call inviting to visit the office to negotiate.

Accounts aging 90 days and above past due with an amount of P 1-4,999 shall be notify by last and final demand letter signed by the corporate lawyer of the cooperative. Those accounts amounting to P5,000.00 and above shall be notify by last and final demand letter signed by the corporate lawyer of the cooperative.

Demand Letters

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A friendly demand letter is helpful to remind the borrower that you are serious with your collection.
A friendly demand letter is helpful to remind the borrower that you are serious with your collection.
A friendly demand letter is helpful to remind the borrower that you are serious with your collection.
  • In cases the delinquent member refused to receive and sign, the notice shall be thru registered mail.
  • The delinquent member shall pay the principal, interest (including past due interest) and penalty. Penalty can be condoned ONLY upon FULL PAYMENT of the account.
  • The delinquent member must pay 20% of the total due in order to reconstruct or compromise the account. An agreement duly signed by the delinquent member and 2 witnesses together with the duly filled up loan application form for restructuring must be accomplished and notarized. If the delinquent member failed to pay his/her 1st monthly amortization, s/he will be notified again by 1st demand letter.

Demand Letter

  • The loan officer is in-charge to make an agreement in with past due amount of P1.00- P19,999.99. The manager is in-charge to compromise with past due amount of P20,000.00 – P 49,999.99. The credit committee chairman is in-charge in making agreement with past due amount of P50,000.00- P99,999.99. The Board of Directors chairman is in-charge in making agreement with past due account amounting to P100,000.00 and above.
  • Term of restructured loan must be in 1 year, 2 years, 3 years, 4 years and 5 years only. The term of payment depends on the capacity to pay of the borrower. Restructured loan amounting to P100,000.00 and above must have collaterals. Interest rate for the restructured loan will be 18% per annum.

Verbal agreement is never binding. That is why sending of notice is pursue in collecting for receivables to make it demand-able and valid. Through sending of notices, prompt payment is established.

Generally, it is the teamwork that would produce satisfactory result in collecting the past due accounts. Therefore, the loan officer together with the general manager should work hand in hand in achieving the goals for the period.

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