What is Delinquency in Accounting?

Delinquency occurs when a payment is past due. This situation only arises when sales are made on credit. Thus, an invoice may be delinquent if it is not paid by its due date, as is a scheduled loan payment. A delinquent condition typically triggers collection activities by the seller, though it may not trigger a late fee. If the seller adds a grace period to the normal payment terms, then delinquency is not considered to be present until the grace period has also expired. Delinquency rates tend to increase during an economic downturn, and decrease when the economy is improving. The company credit department usually considers the average number of days delinquent on prior payments when deciding whether to alter the credit made available to a customer.

Example of Delinquency in Accounting

Here are two examples of situations in which delinquency can arise within the accounting function:

Customer billing delinquency. A company issues an invoice to a customer, which turns out to be a bad credit risk. The customer cannot pay the invoice by its due date, so the invoice is considered to be delinquent.
Internal billing delinquency. A company receives an invoice from a supplier, and has such poor cash flow that it cannot pay the bill. The supplier would consider this invoice to be delinquent.