The Progression of Delinquency

The Progression of Delinquency is an economic model that illustrates the distinct stages that struggling companies experience as their fiscal position deteriorates, and eventually collapses. Overlaying this model with the corresponding Loss Indicators, it becomes possible to not only recognize customers showing signs on financial distress, but to also determine with relative accuracy the extent of their decay. This information can then be used to determine the collection strategy most likely to result in recovery.


STAGE 1: The First Sign of Trouble

  • First appearance of Loss Indicators
  • Customers offer explanations for their “short-term” cash flow problems
  • Customers remain optimistic, even insistent, on a positive outcome

STAGE 2: A Hopeless Situation?

  • More serious Loss Indicators appear
  • Explanations for non-payment are replaced by excuses
  • Customer requests “consideration” on their credit terms
  • Some vendors are paid while others must wait

STAGE 3: “It’s not worth it, I Give up!”

  • As reality sets in, customer loses hope for a positive outcome
  • “Debtor tactics” are displayed
  • Business closure or bankruptcy is final outcome


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