Version 1.0
Prepared by: @Lorraine Sebata
Approved by: @Lashanda Mackey
Reviewed date: 2025-09-04
Next review date: 2026-09-04
This SOP details the step-by-step process for managing delinquent loan accounts and recovering outstanding debts at Easy Terms. Its purpose is to ensure a systematic, efficient, and compliant approach to debt recovery, minimizing losses while maintaining positive client relationships where possible.
This SOP applies to all loan accounts that become overdue at Easy Terms and outlines the procedures for the Collections Department, Loan Officers, and other relevant staff involved in debt recovery.
Collections Officer: Primary contact for delinquent clients; responsible for early arrears management, communication, negotiation of repayment plans, and initial recovery efforts.
Collections Manager: Oversees the Collections Team, approves repayment plans/restructuring, escalates difficult cases, and manages third-party collection agencies.
Collections Department: Provides insights into client creditworthiness and repayment capacity for restructuring considerations.
Legal Department / External Counsel: Handles legal proceedings for debt recovery.
Collections/Finance and Accounts Department: Processes loan write-offs and manages related financial records.
5.1.1 Day 1 (or 1 day after due date): The Loan Management System (LMS) automatically flags accounts as overdue. The Collections Officer generates a list of all overdue accounts.
5.1.2 Day 2-3: Initial friendly reminder via SMS/automated call/email to the client, reminding them of the missed payment and due date.
5.1.3 Day 5-7: Personal phone call to the client by the Collections Officer to understand the reason for the delay, remind them of their obligation, and inquire about their ability to make payment. Document all communication in the LMS.
5.1.4 Day 10-15: If no payment is received, send a formal reminder letter (Appendix A) via mail/email, reiterating the outstanding amount and the consequences of continued non-payment. Attempt further phone calls.
5.1.5 Day 20-30: If still no payment, schedule a field visit (if feasible and necessary) to the client's residence/business to discuss the situation in person, assess their current financial standing, and explore potential immediate payment or a short-term payment plan.
5.2.1 Day 31-45: Send a second formal demand letter (Appendix B), indicating the escalating nature of the arrears and potential further actions. Increase the frequency of phone calls and follow-ups.
5.2.2 Day 46-60: Collections Manager reviews the case. If the client shows willingness but is facing genuine hardship, discuss potential loan restructuring or rescheduling options.
Client submits a formal request for restructuring/rescheduling with a proposed payment plan and supporting documentation (e.g., proof of income change).
Credit Analyst reviews the client's new financial situation and the viability of the proposed plan.
Collections Manager (and/or Credit Committee, depending on loan value/policy) approves or rejects the restructuring proposal.
If approved, a new loan agreement addendum is signed. If rejected, the client is informed, and standard recovery continues.
5.2.3 Day 61-90: Issue a final demand letter (Appendix C), clearly stating the intention to initiate legal action or collateral realization if payment is not received by a specified date.
5.3.1 Day 91: If no payment or viable restructuring is in place, the Collections Manager prepares a comprehensive case file for review by senior management/Legal Department.
5.3.2 Legal Review: The Legal Department (or external counsel) reviews the case file, loan agreement, and all communication records to determine the feasibility and cost-effectiveness of legal action or collateral realization.
5.3.3 Collateral Realization (if applicable): If the loan is secured, initiate the process of collateral realization in strict accordance with the loan agreement and applicable laws. This may involve issuing notices, valuation, and the sale of the asset. Document every step.
5.3.4 External Collection Agency (Optional): Senior management may decide to engage a third-party collection agency. If so, transfer the case file and relevant details to the agency, ensuring a formal agreement is in place. Monitor their progress regularly.
5.4.1 Initiation of Legal Proceedings: Upon approval from senior management, the Legal Department initiates legal action (e.g., filing a lawsuit, pursuing a judgment) to recover the outstanding debt.
5.4.2 Court Process: Follow all court procedures, attend hearings, and provide necessary documentation and testimony.
5.4.3 Enforcement of Judgment: If a judgment is obtained, pursue enforcement measures (e.g., wage garnishment, asset seizure) as permitted by law.
5.5.1 Eligibility for Write-Off: Loans that have exhausted all reasonable recovery efforts (e.g. after legal action has been unsuccessful, or the client is untraceable/bankrupt) and are deemed uncollectible will be discussed with the CEO.
5.5.2 Recommendation: Collections Manager recommends accounts for write-off to the Finance Department and senior management, providing a justification for each.
5.5.3 Approval: Senior management/Board of Directors approves the write-off based on the recommendation and company policy.
5.5.4 Accounting Entry: The Finance Department processes the write-off, removing the loan from the active portfolio but retaining records for future potential recovery.
5.5.5 Post-Write-Off Monitoring: Even after write-off, the account remains on record, and opportunistic recovery efforts may continue if the client's financial situation improves.
Overdue Accounts Report (LMS generated)
Client Communication Log (in LMS)
Final Demand Letter (see template)
Demand Letter Templates (see template)
Field Visit Report Form
Loan Restructuring/Rescheduling Request Form
Loan Restructuring/ReWrite Addendum (in LMS) - think see LMS or in LMS make sure it's consistent
Write-Off Recommendation Form (see LMS Collection Groups)
Write-Off Approval
All Collections Officers, Loan Officers, and Collections Managers will receive mandatory training on this SOP, the Debt and Recovery Policy, and relevant legal frameworks annually or upon significant revisions.
This SOP will be reviewed annually by the Collections and Finance Departments to ensure its continued effectiveness, compliance, and alignment with business objectives and regulatory changes.