Understanding debt terminology is essential for business owners, financial institutions, and collection agencies dealing with retail borrowers. From default notices to repossession, navigating debt collections terminology can be complex. Whether working with debt recovery agencies or managing collections in-house, this guide simplifies key debt terminology to help optimize cash flow and streamline the collections process in India.
Basic Debt Collections Terms
Bad Debt
Money owed by an individual that is considered unrecoverable and is written off.
Example: A borrower defaults on a personal loan, and after multiple failed collection attempts, the bank writes it off as bad debt.
Debtor
An individual who owes money to a financial institution or lender.
Example: A person with an outstanding credit card balance is a debtor.
Creditor
A bank, NBFC, or financial institution that extends credit or loans.
Example: A bank or financial institution providing a business loan is a creditor.
Debt Collector
A company or individual that recovers outstanding debts on behalf of lenders.
Example: A bank hiring a debt recovery agency (DRA) to collect unpaid EMIs.
Loan Account
An account that tracks a borrower’s loan repayments and outstanding balance.
Example: A borrower’s home loan account reflects their payment history and remaining debt.
Write-Off
When a bank or lender removes a loan from their books due to non-repayment, collection efforts may continue.
Example: A bank writes off a defaulted car loan but continues recovery efforts.
Debt Settlement
An agreement between a lender and borrower where the outstanding amount is reduced and settled.
Example: A borrower negotiates a one-time settlement of their personal loan at a reduced amount.
CaaS
Collections as a Service (CaaS) is a tech-driven debt recovery solution that combines advanced software platforms and professional expertise to handle the entire collections process. It enables organizations to outsource their collections operations.
Example: A fintech company partners with a CaaS provider to manage its overdue loan accounts.
Related Read | Collection as a Service: A Comprehensive Guide
Payment-Related Terms
Delinquent Account
A loan or credit card account where payments have not been made on time.
Example: A borrower failing to pay their EMI for 60 days has a delinquent account.
Default
A failure to meet the repayment terms of a loan or credit agreement.
Example: Missing multiple consecutive loan payments can lead to default.
Overdue Payment
A loan EMI or credit card bill that remains unpaid beyond its due date.
Example: A credit card bill due on the 5th of the month but unpaid by the 20th is overdue.
Promise to Pay (PTP)
A borrower’s commitment to pay a due amount by a specific date.
Example: A borrower promising to clear pending dues within a week.
Payment Restructuring
When a lender modifies the loan terms to make repayment easier for the borrower.
Example: Extending a personal loan tenure to reduce EMI burden.
Related Read | Understanding Loan Delinquency: Causes, Consequences, and Solutions
Legal & Compliance Terms
Litigation
The process of initiating and carrying out legal proceedings.
Example: A creditor filing a lawsuit against a debtor who has repeatedly failed to pay despite multiple collection attempts.
Loan Recall Notice
A formal notice sent by a lender demanding immediate repayment due to non-payment.
Example: A bank issuing a recall notice for a personal loan in prolonged default.
Repossession
The process of reclaiming a secured asset after loan default.
Example: A bank repossessing a car due to non-payment of EMIs.
Skip Tracing
The process of locating a debtor who has moved or changed contact information.
Example: A collection agency using databases and public records to find a business that has changed addresses to avoid debt.
SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002)
A law that allows banks and NBFCs to recover secured loans without court intervention.
Example: A bank invoking SARFAESI to seize a property for a defaulted home loan.
Credit Bureau Reporting
Financial institutions report loan repayment behavior to credit bureaus like CIBIL, Experian, and Equifax.
Example: Late payments on a credit card impact the borrower’s CIBIL score.
DRA (Debt Recovery Agent) Guidelines
Regulations set by the RBI for ethical debt collection practices.
Example: A DRA must follow RBI guidelines and cannot use coercive tactics.
Modern Collection Practices & Technology
Automated Debt Collection
Using technology like AI and ML to manage and streamline debt recovery.
Example: Banks using automated voice calls and SMS reminders for EMI payments.
Conversational AI
AI-powered chatbots and virtual assistants that facilitate debt recovery by engaging with customers in natural language.
Example: A WhatsApp bot reminding customers of upcoming EMI payments.
Multichannel Communication
Using various platforms like SMS, email, and WhatsApp for debt recovery.
Example: A bank sending repayment reminders through multiple digital channels.
Propensity to Pay Analysis
Using data analytics to predict the likelihood of debt repayment.
Example: A bank identifying customers who may need special repayment plans.
Related Read | Decoding the Cryptic: The Jargon Buster in FinTech
Compliance Considerations in Debt Collections
1. Adhering to RBI Guidelines – Ensuring debt collection practices comply with RBI’s ethical standards.
2. Maintaining Accurate Records – Documenting all collection interactions for audit purposes.
3. Respecting Borrower Rights – Avoiding harassment or unethical collection tactics.
4. Engaging Professionally – Using polite and professional communication for debt recovery.
Next Steps: Implementing This Knowledge
Now that you’re familiar with essential debt terms, take these next steps to improve your debt recovery process:
1. Review Loan Portfolios – Identify overdue accounts and refine collection strategies.
2. Leverage Technology – Implement AI-driven collection tools for better efficiency.
3. Train Collection Teams – Educate agents on Indian compliance standards and ethical practices.
4. Work with Professional Debt Recovery Agencies – Engage DRAs to handle difficult cases while ensuring compliance.
By understanding retail debt collection terminology, financial institutions can improve recovery rates while maintaining ethical standards and customer relationships. Implement these best practices to enhance collections efficiency in India’s lending ecosystem.
