The term Past Due refers to a situation where a payment obligation or performance of a duty has not been fulfilled by the due date. Despite being overdue, it is important to note that, at this stage, the debtor or party responsible has not yet reached the status of Default.
Definition
When a payment or performance of obligation has not been completed by its due date but has not yet escalated to a default status.
Implications in Finance
Invoices and Bills
In the realm of invoices and bills, “past due” signifies that the agreed payment period has lapsed. Businesses often specify payment terms (e.g., net 30 days), and failure to pay within this period results in the invoice becoming past due.
Loans and Credit Accounts
For loans and credit accounts, an account is considered past due when the borrower has not made the scheduled payment by the close of the due date. The lender typically follows up with reminders and may impose late fees.
Credit Reporting
A past due status can affect credit scores. Lenders report missed payments to credit bureaus, which can lead to decreased credit ratings if the past due status is not rectified promptly.
Types of Past Due Items
Accounts Receivable
Accounts Receivable that have passed their due date fall under the past due category. These require active follow-ups from the creditor or business to ensure payment.
Personal Loans and Mortgages
Missed payments on personal loans and mortgages enter a past due status after the payment due date has passed. Prolonged delinquency leads to default and potentially foreclosure.
Utility Bills
Utility bills not paid by the due date become past due. Continuous negligence can lead to disconnection of services.
Differentiating From Default
Definition of Default
Default occurs when a debtor fails to meet a legal obligation, such as making a required payment after a prolonged period of being past due. It is a more severe status than past due, carrying more significant consequences.
Comparison:
| Criteria | Past Due | Default |
|---|---|---|
| Payment Status | Payment overdue | Payment significantly overdue |
| Consequences | Late fees, credit score impact | Legal action, loss of collateral, severe credit impact |
| Remedial Measures | Reminders, grace periods | Debt collection, foreclosure, repossession |
FAQs
What does being past due mean for my credit score?
How can I avoid past due status?
What are the typical actions taken by creditors on past due accounts?
Summary
Understanding the term Past Due is crucial in financial literacy. It denotes the initial stage of debt delinquency and carries essential consequences such as late fees and credit impacts. By managing payments proactively, individuals and businesses can avoid the transition from past due to default, thus maintaining a healthy financial status.
