How to communicate with delinquent borrowers

Communication is fundamental in lending because loans are inherently sensitive subjects to discuss and complex transactions to handle. Loans are often confusing even to the most clever borrowers. Let’s face it: Borrowing money can be stressful, even for the most financially aware people. Loans can involve a lot of details, and sometimes, things get confusing. 

Clear, frequent, and, most importantly, courteous communication is necessary to ensure your borrowers understand their obligations and maintain a positive lender-borrower relationship. But what happens when payments fall behind? Delinquent borrowers — whose loans are past due and remain unpaid — often challenge even the most empathic lenders who excel at customer communication. 

Five communication strategies to retrieve payment from delinquent borrowers

To successfully manage these tricky situations, a lender must employ targeted communication strategies that are firm and supportive. We’ve collated five of these strategies to enhance your communication with delinquent borrowers:

Start communication early 

The early bird, they say, catches the worm. In our five years of interacting with over 3500 lenders from all walks of life, you’d be shocked at how many lenders wait until loan repayments are past due before they kickstart communication with their borrowers. These lenders make no effort whatsoever to keep the communication line open with their borrowers. As a smart lender, initiating communication with your borrowers weeks before the loan’s due date is best practice by sending a friendly reminder through emails, SMS, or in-app popup notifications.  As a rule of thumb, it’s advisable you track your email delivery to ensure that the intending recipient reads them.

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Offer assistance or solutions

You can’t give what you don’t have. While it’s expected that all of your borrowers repay their loans as and when due, we must admit that occasionally, even the best customers come across difficult moments when they really cannot meet their due date, thereby defaulting on their loan. As a responsible and empathetic lender, you must sympathize with struggling borrowers and give room for communication by indicating that they can reach out to you in case of unavoidable financial constraints that may cause delays in loan repayment. Provide options for repayment plans or restructuring the loan to make it more manageable. Show willingness to work with these borrowers to find a fair solution for both of you.

Featured read: How to restructure loans and work with struggling borrowers

Direct phone calls and in-person visits

When loan repayment is past its due date, it’s best that a lender proactively reaches out to their borrowers via more effective channels like direct phone calls. A direct phone call allows immediate and personal communication with the borrower, effectively conveying urgency and importance. During the call, you can explain the situation clearly, discuss repayment options, and answer any questions the borrower might have. It also provides ample opportunity to gauge the borrower’s willingness to cooperate and address any misunderstandings promptly. However, if you cannot reach said borrower with one phone number, you should use a different one they are unaware of. That way, you can confirm whether the borrower is being evasive. When phone calls are ineffective, in-person visits can be a powerful next step. And this step is only implored if the loan is considered large enough. During the visit, ensure the conversation remains respectful and constructive. An in-person visit can also give you insights into the borrower’s situation that might not be apparent through other forms of communication.

Communicate with guarantors (if any)

If the loan has guarantors, reaching out to them can be an effective strategy. Guarantors are often legally obligated to ensure the loan is repaid and may have a vested interest in resolving the delinquency. Communicate the situation to the guarantor, providing details on the overdue payments and any actions taken. By involving the guarantor, you increase the pressure on the borrower to fulfil their obligations, as the guarantor will also push for a resolution to avoid financial repercussions.

Communication through legal entities 

As a last resort, you may need to communicate via more stricter channels if the loan amount is substantial enough. Communication through legal means sends a clear message to the borrower about the seriousness of the situation. This approach can include sending official notices through Lawyers, filing complaints of loan defaults to credit bureaus or private-owned blacklists, using automated loan recovery methods, or requesting mediation from relevant financial regulatory agencies.

Communication is key

Talking to delinquent borrowers can be challenging, but it’s essential for any lender who wants to keep things running smoothly. Loans can get complicated and stressful, especially when repayments are late. That’s why having a good communication strategy is so important.

To summarize, start by reaching out early, before payments are due. Offer help and solutions if someone is struggling. A phone call or in-person visit can make a big difference when loans are overdue. If there are guarantors involved, get them in the loop, too. And when all else fails, formal communication through regulators can be the last step.

Remember, clear, courteous, regular and sometimes stern communication makes all the difference.

If you want to know more about how we could help you navigate communication with delinquent borrowers, send us a message at [email protected].