How our collections process works (part 2)
When a business falls behind with their repayments, we have a process in place to try to get them back on track which we outlined in our previous post. We will now explain how and when we update you on loans which are late, and those that have defaulted. We do this by writing loan comments which you can access in your account.
Firstly, we hope you have noticed an increase in frequency and detail in loan comments recently.
At the beginning of each fortnight, the Collections & Recoveries team takes a snapshot of all the loans and all the Defaults. We distribute these around the team so that we can check whether there has been any material activity which should be explained to you.
This means that that the longest a defaulted or late loan should be without a comment (unless we have specified a date for the next comment) will be 4 weeks. In practice, however, this will usually be around 2 weeks.
We carry out a monthly review of all downgraded loans to see whether they should have their risk band reinstated. If we reinstate a risk band we will provide a comment to explain why we have done so.
If a borrower misses a payment at the beginning of one of those two week periods and we do not cure it within that period, then the loan will be given a comment the following fortnight. We will endeavour to explain the reason that we think a loan has become late as we appreciate that it is helpful for investors who wish to buy and sell loan parts from others.
When a borrower enters liquidation or administration it often takes a couple of months for the guarantors to sort out their financial affairs and work out a plan for the future. We try to work with guarantors throughout this period, but communication is often irregular and the initial forecasts can be disappointing. That said, things often pick up, and because of our approach, guarantors either try to enter into payment plans that result in a full recovery or they seek relief through bankruptcy.
When a borrower or guarantor is in a payment plan and is making regular monthly payments, we will only comment when the payment comes in. From time to time payments may slip by a few days, but we are monitoring them and will update you if we feel that there is a material risk of there being no payment or a reduced payment in that month.
Legal or insolvency proceedings
When a guarantor enters into a formal insolvency procedure (such as an individual voluntary arrangement or bankruptcy) we will try to find out what the estimated recovery is, but insolvency practitioners are often unwilling to give information outside of the prescribed reports. These reports occur every 6 or 12 months, and there is no available information outside of that. Likewise, court procedures can take a long time to work through, especially if the defendant is putting up a defence. We will, where possible in these longer term cases, give you a specific date for when we will next post a comment, with a reason why that should be the next date. Of course, if anything significant occurs before then we will let you know.
We hope this 2-part series by our collections team has been helpful in understanding more about how our collections and recoveries process works. If you have any feedback on how we could further improve loan comments, please let us know.
The Funding Circle team