Arrears

Arrears can be defined simply as overdue payments. People commonly associate the term with overdue payment for debts but it is also used for any overdue payments including dividends still unpaid to stockholders by companies.

In debt missing one or more payments result in arrears. This is undesirable because it usually entails add on charges from penalties and interest. When arrears aren’t paid to service providers the service is usually discontinued, whether temporarily or permanently depends on the contract. On the other hand, financial institutions either keep on adding penalties and charges for unsecured debt or close an account. Those using who do not make payment on credit cards of course end up ruining their credit rating.

To avoid negative consequences of late payments it is important that people get a bitter grip on their budgeting. If the monthly amortizations are just too high it is time to learn which debts to prioritize and to ask lending institutions to restructure loans.

When it comes to investment the term arrears, as mentioned above, pertains to unpaid dividends to stockholders, specifically preferred stocks. This happens when dividends for cumulative preferred stocks were not declared. The dividend in arrears need to be declared in the next financial statement because this affects common stockholders. The dividend arrears will be subtracted from the present total dividends. They will be paid to the preferred stockholders before the common stockholders get their share of the dividends. This makes common stockholders unhappy, which is why companies avoid dividend arrears as much as possible.

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