Final answer:
The final step when a party fails to pay on their account is to take legal action. Earlier measures include reminder letters, payment plans, and potentially writing off the debt. Good credit management by the borrower helps mitigate risks and reassures banks during loan approval processes.
Step-by-step explanation:
If a responsible party fails to pay on his or her account, the final step is to take legal action. Earlier steps might include sending a reminder letter, offering a payment plan, or writing off the debt as a last resort. It is important for creditors to manage their receivables to sustain their business operations. A credit card company might charge late fees and daily fees for unpaid balances. Moreover, the minimum monthly payment requested by creditors usually includes both a portion of the principal and the interest. Paying off credit card balances quickly is advisable to avoid accumulating more interest.
A borrower looking for a loan can reassure a bank by providing collateral, showing a good credit history, presenting proof of steady income, or obtaining a cosigner. These actions help to mitigate the bank's risk associated with imperfect information regarding the borrower's ability to repay the loan.