As the adage goes, cash is king. However, try as they may, there are times when an SME borrower will not have the cashflow to be able to make their scheduled repayment to lenders in a particular month. As we emerge from the furlough scheme, let's look at the causes of late repayment and what rebuildingsociety.com does as a platform when there are payment issues with a borrower.
The COVID-19 pandemic has caused a myriad of issues for individuals and businesses across the country. Whether it is the primary health impact or the knock-on effects of lockdowns, supply chain disruption and premise closures, most individuals, and businesses both small and large, have been forced to tighten their belt and adapt.
Amid the national drop in GDP of around 10%, SMEs faced flat cashflow and an average reduction in turnover of 30% in 2020. A combination of close contact with our borrowers and assistance programmes offered by the government has helped to keep the number of late repaying borrowers at rebuildingsociety.com very low. However, although the Coronavirus Job Retention Scheme (furlough) and most government-guaranteed loan schemes for SMEs has ended, it would of course be very premature to consider the pandemic and the challenges it brings to be over.
As surveys and discussions with our borrowers have laid out, the end of the furlough scheme was a key moment that many SMEs were preparing for. With many companies experiencing turnover that has not yet returned to pre-pandemic levels, the end of government support for payroll represents a big squeeze on cashflow.
rebuildingsociety.com's actions
We’ve already seen a small rise in the number of late repayments since the end of furlough. Whilst a rise in the number of late repayments will obviously be cause for concern for affected lenders, we are working hard to manage the transition from the furlough scheme for our borrowers. As well as the usual late repayment process that we will go on to detail towards the end of this post, we want to support borrowers as early as possible to try to ensure any payment issues are temporary.
We contacted borrowers who had reported to us that they utilised the furlough scheme. We wanted to ensure that they were prepared for the scheme to end and ask if they foresaw any issues. Where appropriate, with borrowers who told us that they are experiencing cashflow difficulties, we are putting them in contact with our network of consultants and credit controllers to assist. We’re also continuing to communicate with our borrowers regularly to encourage them to get in touch before a payment is due if there is an issue.
As well as these COVID-specific communication and support functions, our late payment collection work continues to be managed by an experienced debt collection company who have a dedicated team handling our account.
Late repayment process
Stage 1 | Before payment is due
Unlike some other platforms, we do not offer a grace period before starting to chase a late payment or recognising it as overdue.
Our credit control process often starts before a payment is even due. The Direct Debit payment submission process requests a payment a few days before it is charged and will show up as having succeeded or failed a day or two before we receive the cleared funds in our client account. Having full oversight of this process, our credit control agents can react if a payment is refused or fails to be taken, often a day or two before the payment is due. This allows us to work with borrowers to rectify any payment issues or, if appropriate, make a manual repayment before the due date.
Stage 2 | Payment overdue
On day one of a repayment being overdue, our credit controllers will call and email the borrower to notify them that the repayment is now overdue. The borrower will be encouraged to pay within a 6-day timeframe from the due date to avoid the application of a late payment fee of 15% of the balance owed. Most late payment issues are solved in this initial window.
Stage 3 | 1 week overdue
If no repayment has been received and no response has been forthcoming from the borrower, our collections team will write to the second point of contact on the loan and to all loan guarantors, explaining that the payment is overdue and the loan is therefore at risk of default.
Stage 4 | 30 days overdue
Up to this point, the directors, guarantors and named second point of contact within the company will have been receiving daily calls and emails from our credit controllers. If no payment or plan is forthcoming by this stage, we will send a formal letter to the loan guarantors, notifying them that the loan is in arrears, reminding of their obligations as guarantor and that, should it fall into default, the loan will become immediately payable on demand.
Should a repayment not be received after 30 days, microloan trading on a loan will be suspended. This is our first step to taking further legal action against the borrower. Where a loan is declared a default, the account will be passed on to our legal recovery team who will look to call in any security on the loan and start legal insolvency action against the company and the loan guarantors.
As always, we will do our best to keep lenders updated with information on a late repayment / overdue loans as and when it becomes available to us. The latest information can be found on the Loan Updates tab of the loan in question, and these updates are also visible through your lender dashboard by clicking Loan Updates in the My Account tab, where you will be able to find all recent updates posted to loans in your portfolio in one place.
