How lenders can use mediation to collect on delinquent accounts
With rising inflation and the cost of everything from student loans and medical bills to housing and groceries increasing, it’s no surprise that American households owe $18.036 trillion, with the average being a whopping $105,056 per household. As lenders, it’s often an expensive, lengthy, complicated process trying to collect overdue payments from delinquent accounts. This can have a negative impact on not only client relationships, but also on the cash flow and operations of your business—especially if you have to go through the courts.
Mediation can be a more cost-effective, efficient alternative in which both sides can work cooperatively with an impartial third party to settle the dispute outside of litigation and reach a mutually beneficial solution.
Here’s what debt mediation actually is, the debt mediation process, and the benefits to lenders by using mediation to collect on delinquent accounts.
What is debt mediation?
Debt mediation is a process where an impartial third person—a trained and experienced mediator—facilitates negotiations between lenders and debtors with the goal of reaching a mutually agreeable resolution outside of a courtroom and without standing in front of a judge. The goal is for the lender to be repaid their debt, while helping those who owe the money avoid bankruptcy and additional financial stress.
It’s often difficult to collect overdue payments, but mediation can be a preferable option when both parties are open to addressing their concerns and exploring alternative solutions. Whereas in court someone “wins” and someone “loses,” mediation may offer personalized resolutions that allow for a repayment plan or settlement that allows both sides to walk away with a win.
A variety of debts may be eligible for mediation, including:
- Personal or payday loans
- Credit card debt
- Medical debt
- Gambling debt
- Farm debt
- Business lines of credit and other unsecured business debt
The process of debt mediation
Unless ordered by the courts, mediation is a voluntary process, and no one can be forced to participate in mediation. However, once debtors learn about the benefits as they compare to bankruptcy, debt consolidation, collection agencies, and lengthy and expensive court battles, they’re often open to having an impartial third party mediate their dispute.
The mediation process itself will vary depending on the nature of each financial dispute, but in general a trained mediator acts as a neutral third party between lenders and debtors to help negotiate a settlement amount and/or create a customized repayment plan that ensures the lender receives what they need and the debtor’s payments are affordable.
Each side is given time to confidentially explain the matter being mediated and share their point of view. This is the time to let the other party know the consequences they’ve experienced due to the dispute at hand. The mediator will ensure that neither party is interrupted and keep the conversation on track in an impartial way that ensures both sides have time to make their voices heard.
After each side has had their time, the mediator will summarize the situation and encourage both sides to work together to reach a solution and resolve the dispute. Once a resolution is reached, the terms of the agreement will be written down and signed by all parties, at which time it becomes a contract that’s enforceable by the courts—ensuring lenders can in fact collect on delinquent accounts.
The benefits of debt meditation
Debt mediation offers a variety of benefits to both the lender and those with delinquent accounts, including:
Cost-Effective Option
Mediation is frequently less expensive compared to taking the dispute to court, which may require significant legal fees and court expenses.
Faster Resolution
Whereas court proceedings can take months or even years, mediation settles matters within only a matter of weeks.
Customized Solutions
There’s no one “right” answer to debt collection with mediation, as the process allows for both sides to explore and develop innovative, specialized solutions tailored to the unique characteristics of the debt and those involved.
Mutually Beneficial Outcomes
Because both sides are voluntarily participating in the process and working towards a more collaborative resolution—the mediator isn’t a judge issuing a ruling—mediation often results in both parties being more satisfied in a solution they helped develop, as opposed to being forced to accept someone else’s decision.
Preservation of Relationships
While as a lender you may not want to continue to do business with those who owe you a significant debt, meditation can help to maintain professional relationships by encouraging open and cooperative conversation. Consumer relationships are critical in business, and long-term goodwill towards your reputation can go a long way.
Ready to start debt mediation?
When you’re looking to collect on delinquent accounts and want to stay out of the courts, our trained mediators can work with both parties to foster calm, focused conversations that get to the core of the issue—and get you the resolution you deserve.
Contact Conflict Resolution Services at 231-941-5835 or casemanager@crsmediationtc.org.
