How payments are applied
When you record a collection, the system decides automatically how the money is shared out. You do not choose the split; this page explains how it works so you can explain it to clients.
The order: penalties, interest, principal, savings
Each payment is applied in a fixed order. Each step takes as much as it is owed, and whatever is left moves on to the next step:
- Unpaid fees - only if your organisation has switched on "Take unpaid fees out of a collection first". Otherwise this step is skipped.
- Penalties - any late-payment penalties charged on the loan.
- Interest - the interest that is due.
- Principal - the principal that is due.
- Savings - anything left over goes into the client's savings.
The order never changes. A client cannot ask for a payment to go to principal before penalties, for example.
How much counts as "due"
Interest and principal are "due" up to what the repayment schedule has asked for so far, counting from disbursement up to the date of the collection:
- A client who is up to date has one day's instalment due. If they pay more than that, the extra goes to savings. They cannot pay the loan off early by paying extra; the money is kept for them in savings instead.
- A client who is behind has every missed instalment due as well as today's. A larger payment therefore clears the backlog first, oldest instalments first, before anything reaches savings.
- One instalment ahead is always allowed. A payment can always cover the next instalment after the ones already paid. This is why a payment made on the disbursement day itself counts towards the first instalment rather than going to savings.
Some organisations are set up to allow early settlement, where a payment can clear the whole remaining balance and only money left over after that goes to savings. Ask your administrator how your organisation is set up.
Worked examples
All three examples use the same loan, chosen to give round numbers:
- 100,000 borrowed at a flat 15% over 50 days
- Total interest 15,000, total to repay 115,000
- Daily Required 2,300, made up of 2,000 principal and 300 interest
The penalty figures are for illustration only. Penalty rates depend on your organisation's settings.
Example 1: paying exactly on time
On day 1 the client pays 2,300.
| Step | Owed | Applied | Left over |
|---|---|---|---|
| Penalties | 0 | 0 | 2,300 |
| Interest | 300 | 300 | 2,000 |
| Principal | 2,000 | 2,000 | 0 |
| Savings | - | 0 | - |
The loan is up to date. The collection shows Loan Portion 2,300 and Savings Portion 0.
Example 2: paying more than the instalment
On day 1 the client pays 2,500.
| Step | Owed | Applied | Left over |
|---|---|---|---|
| Penalties | 0 | 0 | 2,500 |
| Interest | 300 | 300 | 2,200 |
| Principal | 2,000 | 2,000 | 200 |
| Savings | - | 200 | - |
The loan is up to date and 200 is added to the client's savings.
Example 3: catching up after missed days
The client paid nothing on days 1 and 2, and penalties of 92 have been charged. On day 3 they pay 7,000. Three instalments are now due: 900 of interest and 6,000 of principal.
| Step | Owed | Applied | Left over |
|---|---|---|---|
| Penalties | 92 | 92 | 6,908 |
| Interest | 900 | 900 | 6,008 |
| Principal | 6,000 | 6,000 | 8 |
| Savings | - | 8 | - |
The penalties are cleared, all three instalments are paid, the loan is back up to date and 8 goes to savings.
Things to explain to clients
- Penalties come first. If a client owes penalties and pays exactly one instalment, part of the payment clears the penalties and less reaches the instalment. They end the day short and may be charged a further penalty. To catch up, they need to pay the instalment plus what they owe in penalties.
- Fees can come before everything. Where your organisation takes unpaid fees out of collections, a client who owes a fee and pays their full instalment will still fall behind by the amount of the fee.
- Extra money is not lost. Anything above what is due goes to the client's savings, which they can see on their passbook (the Savings tab of the loan).
- Missed days are caught up oldest first. The Schedule tab always fills the earliest unpaid instalments first.
Where to see the split
- On the loan page, the Collections tab shows each payment's Loan and Savings parts.
- Small Loans > Collections > All Collections shows Loan Portion and Savings Portion for every collection.
- The loan's Savings tab shows the amount added to savings as a passbook entry.