The purpose of a charge-off is to designate some portion of a loan principal balance or earned but uncollected fees, interest, or escrow as uncollectible. This will do two things: first, it will move loan notes off your books, and second, it will help you account for your losses and uncollected revenue.
If you do end up collecting some or all of a charged-off amount, you can log a recovery payment against the charged-off portion of an account in order to decrease an account’s charge-off balance.
Adding to Due Charge-Off Balance
To add a charge-off for any account, navigate to Servicing > Net Charge-Off > Adjustments in that account.
Here you will see a list of all the payments and credits on the account. Click on the “Flag As Charge-Off” buttons to toggle whether these transactions will be considered charge-off transactions.
The “History” tab in the Net Charge-Off section will show you payments or credits that have been designated as charge-offs. Click the date for any of these to view more information about the transaction.
Recovery payments are payments that do not affect the loan balance in any way, but do affect the charge-off balance on the loan account. When a recovery payment is logged, it will directly reduce the net charge-off balance. Please note that the net charge-off balance is separate from the loan balance and is not interest bearing.
Recovery payments act much like normal payments, in that they can be added, reversed, and edited. Additionally, at the time of logging a recovery payment, a payment profile can be used to allow the processing of the payment.