Sending a Loan to Collections

Payoff quotes, refinancing, charge offs, paid in full, zeroing balances and closing loans.
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Sending a Loan to Collections

Post by wtech_josh »

My personal favorite way of sending a loan to collections is to charge-off the loan and then consider all payments through collections as profit.

First, use the Payoff Calculator to generate a payoff quote. Send that amount to collections - that's what the borrower is supposed to pay you at the time you handed over the loan. Then close the loan - be sure to set the date to today (or whenever the loan is going to collections) - and let Moneylender charge off the principal.

The charged-off principal is an expense on your books - comes straight out of your profit. Then any money collections sends you is profit.

That's what I usually recommend when people call. If you have a different process that you like better, please post it so we know what the options are.

The one caveat to this is if you're reporting to credit bureaus, the charge-off amount won't go down. When a borrower makes payments after a loan is charged off, you're supposed to decrease the amount of the charge-off reported by the amount of the payments you've received. I haven't talked to anyone that's sending to collections and also reporting to credit bureaus.

For anyone reporting to credit bureaus, you can't send a loan to third-party collections unless you keep the account open in Moneylender and record the payments against it.
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