If you’re a business professional, you may have heard the term “arrears” used in conversations, but do you know what it actually means? Put simply, arrears are when payments that have been agreed upon between two parties are not made in full and on time. It is essentially money that is owed and is collected by a creditor.
For instance, if an employee has agreed to a payment plan for a loan and has received a notice that payments are in arrears, this means that the payments made have not been up to date and now the creditor is taking action to get the payment owed. It is important for business professionals to understand what arrears are so they can properly take action to pay what is owed and avoid incurring more debt or fines.
Types of Arrears
Arrears can be classified under different categories depending on the type of loan and agreement structure. Common examples of arrears include:
- Rent Arrears – Rent that is not paid when it is due.
- Mortgage Arrears – Mortgage payments that have not been made.
- Credit Card Arrears – Credit card payments that have not been made.
Consequences of Falling Into Arrears
When you fall into arrears, there may be serious consequences, including late payment fees, damage to your credit score, potential legal consequences, and more. Therefore, it is important to understand what arrears are and how to avoid them. Be sure to stay in communication with creditors and pay off any loans as quickly as possible to avoid becoming delinquent on payments.