Overdue debt is the principal and interest that the borrower fails to pay on time as agreed with the bank or financial institution. This affects the credit score and can lead to many difficulties in borrowing money in the future.
This article by Bizzi will provide an overview of what overdue debt is, solutions to handle overdue debt as well as ways to avoid incurring this debt.
Overview of Overdue Debt
Below is general information about overdue debt to help you grasp the nature and understand this item:
What is the definition of overdue debt?
Overdue debt is the situation where the borrower fails to repay on time the amount of money used for spending or the principal and/or interest of the loan according to the agreement signed with the bank, credit institution or financial company.
This occurs when a customer fails to pay in full and the payment due date has passed. For credit cards, delinquency is when a cardholder fails to meet their payment obligations by the agreed due date.
Types of overdue debt
- Overdue debt with collateral: Debts that individuals/borrowers cannot repay on time, loans with collateral (houses, land, vehicles), helping banks still have the ability to recover the initial loan capital.
- Overdue debt without collateral (credit debt): Debt of an individual who borrows capital without collateral, is unable to pay interest and principal on time, causing the bank to be at risk of not being able to recover the initial capital.
Is overdue debt bad debt?
Overdue debt will become bad debt when it is paid late or does not pay both principal and interest on time as specified in the contract, especially when the payment is overdue for more than 90 days. Bad debt is debt in groups 3, 4 and 5 according to the provisions of Circular 11/2021/TT-NHNN (currently Circular 31/2024/TT-NHNN).
Information about this debt will be saved on the Vietnam National Credit Information Center (CIC) system, causing difficulties for customers when they want to borrow money next time.
Classify overdue debt/bad debt groups according to regulations
According to Circular 11/2021/TT-NHNN (now Circular 31/2024/TT-NHNN) of the State Bank of Vietnam, overdue debt is divided into 5 groups:
Group 1 (Standard Debt)
- The debt is current and is assessed to be fully recoverable, both principal and interest, on time.
- Or the debt is overdue for less than 10 days and is capable of fully recovering the overdue principal and interest as well as the remaining amount on time.
Group 2 (Debts needing attention)
- Debts overdue from 10 to 90 days.
- Or the debt has been adjusted by the credit institution for the first time but is still within the due date.
Group 3 (Substandard debt)
- Debts overdue from 91 days to 180 days.
- Including debt with restructured repayment term for the first time overdue less than 30 days.
Group 4 (Doubtful/bad debt)
- Debts overdue from 181 days to 360 days.
- Including debt restructured for the first time but overdue for up to 90 days or restructured for the second time but still within the term.
Group 5 (Debt with potential loss of capital)
- This is the worst level, with overdue times of over 360 days.
- Including debts that have been restructured for the first time and are overdue for 91 days or more or have been restructured for the third time or more.
What are the risks and consequences of overdue debt?
Overdue debt is a debt that is due but not paid on time as promised. Overdue debt, whether for individuals or businesses, can cause many risks and serious consequences:
Pay high penalties and interest
- Customers with overdue credit debt will have to pay a late payment penalty (about 5% of the late payment amount, minimum from 50,000 - 200,000 VND depending on the bank) and overdue interest (about 20 - 40%/year depending on the bank).
- For example, Techcombank applies a penalty fee of 5% (minimum 50,000 - 200,000 VND) and an interest rate of 19.8 - 38.8%/year depending on the card type.
- Formula for calculating overdue interest: Remaining unpaid loan amount x 150% x Agreed loan interest rate x Time of late principal payment.
Receive regular alerts and reminders from the bank
- When the debt is overdue, the bank will send a reminder notice via SMS, email or phone call to find out the reason and request payment.
- If the debt is overdue for 6 months, the bank has the right to block your credit card.
Impact on personal creditworthiness and future borrowing ability
- Overdue credit card debt will negatively affect credit history and personal financial reputation, making it difficult for customers to continue borrowing capital or opening new credit cards in the future.
- Customers with bad debt history from group 3 or higher will not be able to open any additional credit cards.
- Even if the outstanding debt has been paid, if the customer has a bad debt history, it will take 2-5 years to rebuild their credit score and they will be restricted from participating in loans at banks and financial companies.
Liability and Risk of Liability
- With the terms debt Overdue, customers must bear legal responsibility according to Vietnamese banking law.
- According to Circular 11/2021/TT-NHNN, banks can file lawsuits for debts of VND 2 million or more that are overdue for 36 months.
- In practice, banks often give customers the opportunity to repay their debts before initiating legal action, but if unsuccessful, this is the final step in debt recovery.
What is the solution to effectively overcome and manage overdue debt?
Effectively resolving and managing overdue debt is vital for individuals and businesses to avoid insolvency, bad debt and financial reputation loss. Below are solutions to effectively resolve and manage overdue debt:
Contact the bank for support in debt restructuring/payment of outstanding debt
- In case of insufficient finance, customers can contact the bank for support in paying off debt in installments or restructuring the debt repayment period.
- The bank will consider the application based on the customer's ability to repay and the bank's policy.
- Cases considered for support include: unable to pay debts on time but still able to pay, suffering financial losses due to natural disasters/epidemics, or having bad debts from group 3 to group 5.
Prioritize paying off all outstanding principal and interest as soon as possible.
- Even though the bank has a policy to support installment payments, paying the entire outstanding balance, penalty fees and interest at once is the most optimal method to avoid incurring new interest.
- After payment, customers need to build and accumulate credit reputation to increase the rate of approval for future loans.
What are the tips from banks to avoid overdue debt?
- Sign up for automatic credit payment service (automatic debit).
- Set up payment notifications by text or email.
- Choose a fixed payment date each month to make it easy to remember.
- You should pay the outstanding balance 2-3 days before the payment due date to prevent system errors or holidays.
What is the role of technology in managing costs and receivables to avoid overdue debt?
Technology solutions like Bizzi can help businesses manage their finances closely, thereby minimizing the risk of overdue debt, especially in B2B transactions and internal cost management. Specifically:
Establish a comprehensive cost control system
- Bizzi provides a comprehensive cost control system for businesses, acting as an AI assistant for the finance and accounting department, automating the revenue and expenditure process.
- The platform integrates more than 30 features to help businesses streamline and automate their cost management, debt collection, and B2B payment processes.
Closely manage business expenses
- Set up and monitor budget: Allows budget allocation by department/project and monitors spending against allocated budget, warning when budget is exceeded.
- Automated Spend Approval: Helps speed up the approval process of spending requests.
- Real-time expense tracking and expense reporting: Provide up-to-date spending information and generate detailed reports by category, department, or project.
- Establish spending policies and approval processes: Ensure compliance with company policies, from purchase requests to payments.
- Irregular/over-budget spending alerts: Notifications when new spending requests are made, when spending exceeds budget, or when unusual transactions are detected.
- Allows employees to submit expense requests in advance, track request status, and attach expenses to specific projects/tasks.
See more solutions here
Tight debt management
- Automatic debt reminder: Create debt reminder process according to scenario via email, text message.
- Monitor and control debt Customers and suppliers: Automatically record and track debts of each customer and supplier.
- Due/Overdue Debt Warning: Provides warnings when debt is nearing its due date or is showing signs of being overdue.
- Detailed debt report: Generate a report on the debt situation of the business.
Processing input invoices and electronic invoices (B-invoice)
- Automate invoice processing: Use Bizzi Bot with RPA and AI technology to upload, check, and reconcile invoices, including real-time reconciliation of invoice details, purchase orders (POs), and warehouse receipts (GRs) to detect discrepancies.
- Verify suppliers and warn of risky invoices: Check tax codes, operating status on tax systems and detect invoices from suppliers with signs of risk.
- Create, export, store, and search electronic invoices: Meet tax authority requirements (XML/PDF), allow template customization, batch export, store for at least 10 years, and easy search.
- Integrate with accounting/ERP systems: Synchronize data for seamless financial management.
See more solutions here
Easy expense management (Bizzi Travel)
- Automated flight booking and business expense management: Integrate with ticket booking services so employees can quickly book tickets according to approved budgets, while tracking and managing business expenses (flights, hotels, transportation, meals).
- Spending limits and travel approval process: Set spending limits for each employee/trip and require pre-approval for trips.
- Business Expense Report: Provides an overview of business expenses.
- Over budget alert: Send notification when business expenses exceed limit.
What are the most common problems with overdue debt?
Below is a summary of some common cases of overdue debt:
Is it okay to be 1 day overdue on credit card payment?
- Overdue even by 1 day will still be charged a penalty fee and overdue interest on the minimum outstanding balance depending on the bank.
- You should pay the outstanding balance 2-3 days before the payment due date to avoid technical risks or penalty fees.
Can I postpone the payment schedule for overdue credit card debt?
- Overdue credit card debt cannot be deferred.
- However, customers can request to pay off the outstanding balance in installments with the bank in some special cases as mentioned in the solution section.
Can I get another loan if I have overdue credit card debt?
- No, overdue credit card debt will negatively affect your credit history, making it difficult for you to be considered for new loans or new credit cards until you pay off the debt.
How long does it take to sue for credit card debt?
- According to Circular 11/2021/TT-NHNN, banks can file lawsuits for debts of VND 2 million or more and overdue within 36 months.
- However, in practice, banks often apply professional solutions before initiating a lawsuit.
Conclude
Overdue debt is a serious financial problem that can have many negative consequences for individuals and businesses. It is essential to understand the definition of overdue debt, its classification, the risks involved, and the solutions to overcome it.
In addition to proactively managing personal finances, businesses can take advantage of modern technology solutions like Bizzi to automate and streamline the cost management process, offset, to prevent and handle overdue debt effectively, ensuring financial health and credit reputation.
- Link to register for a trial of Bizzi products: https://bizzi.vn/dang-ky-dung-thu/
- Schedule a demo: https://bizzi.vn/dat-lich-demo/
