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.