Arrears Settings
  • 21 Sep 2020
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Arrears Settings

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Overview

In Arrears Settings, you can control how a loan's days in arrears should be calculated.

Please Note
These settings affect anything that is derived from a loan's days in arrears, such as penalties, notification templates and reports.

Arrears Tolerance Period

You can define a number of days of tolerance which allows loan repayments to be late while the account remains in Active state and hence not counting towards your PAR.

Some organizations use the arrears tolerance period, for instance, to give their field officers some time to return from remote areas if they had to keep track of the collections offline and enter the collected repayments when they are back at the branch with internet access again.

The number of days you enter will determine the period that a loan account with late repayments will remain Active. After this period, Mambu will automatically change its state to In Arrears, in case there are still late repayments.

If you choose not to determine an Arrears Tolerance Period, Mambu will automatically set the loan account state to In Arrears as soon as an installment is due and no payment has been received.

The tolerance period is defined on the level of the loan products. When creating or editing a loan product, enter the number of tolerance days in the Arrears Tolerance Period field. You can also establish a minimum and maximum value for the period, thus enabling the user to determine the arrears period at account creation within these constraints.

Arrears Settings at Product Level with Arrears Tolerance Period (days), Arrears Days Calculated From and Non-Working Days in Arrears Tolerance Period and Penalty Calculation Method options

Days in Arrears indicator

On loan accounts, as well as in custom views, you can see the number of days a loan is late and in arrears. The difference between these two counts is that the Days In Arrears indicator is calculated based on the the arrears tolerance period, while the Days Late indicator is displayed even when the account is not yet in arrears, due to the tolerance period.

For example, a loan that has a 2-day arrears tolerance period specified and where a payment is 87 days late has a Days In Arrears count of 85.

arrears-tolerance-days-count

We will review some detailed examples of calculating Days in Arrears in the next section.

Read more about working with overdue loans here.


Arrears Days Calculated From

Mambu has two options for counting the number of days in arrears:

  • Date Account First Went Into Arrears: Counted from the date the account most recently went into arrears. This could stretch across several late instalments, even if one or more of the earlier ones have since been repaid, provided that the account has not yet been put back into good standing.
  • Date of Oldest Currently Late Repayment: Counted from the oldest currently-late instalment, even if the account was put into arrears at an earlier date.

Arrears Days Calculated From option in Loan Product setup

As an example, consider a loan with the following expected schedule (with an Arrears Tolerance Period of 0 days):

Example: calculating Arrears Days – schedule

As shown by the list of transactions below, this account went into arrears on two occasions:

  1. On February 4, because the total expected £916.80 on February 3 was not paid. The account was then put back in good standing with the payment of £3,000.00 on March 18.
  2. On July 2, because the total expected £916.80 on July 1 was not paid. The next repayment of £930.02, expected on August 3, also failed to be paid on time. The repayment of £1,828.67 made on August 4 failed to cover the interest of £18.15 applied on August 3, so the account was not put back in good standing.

Example: calculating Arrears Days – transactions

Using the Date Account First Went Into Arrears method of counting days in arrears, the account is 48 days in arrears as of August 18, 2020: the number of days between July 1 (the due date) and August 18 (the current date). This is because it most recently went into arrears on July 2 and had not been put back into good standing by August 18.

The previous time when the account went into arrears, February 4, is irrelevant for this calculation, since the account had been put back into good standing since then (on March 18).

Conversely, the account is 15 days late: the number of days between August 3 and August 18. This is because the interest applied on August 3 is the only installment that had still not been paid by August 18.

Example: calculating Arrears Days – details

If this loan used the Date of Oldest Currently Late Repayment method of calculating days in arrears, it would be 15 days in arrears as of August 18, because the oldest repayment that was late on that day was the repayment due on August 3.

Arrears Non-Working Days Method

The last setting allows you to determine whether the day count of days, before the loan is set in arrears, should include or exclude non-working days as per your holidays settings.

Arrears settings - Non-Working Days method

Arrears Tolerance Percentage

Arrears Tolerance Amount (% of Outstanding Principal)

Please Note

This feature is only available for Fixed and Dynamic Term Loan Products.

You can define the Arrears Tolerance Amount (% of Outstanding Principal) on the product level for your loan accounts. If the due amount exceeds a predefined percentage in relation to the outstanding loan balance, the loan account’s state will automatically change to In Arrears.

arrears-settings-tolerance.png

You can specify three optional fields under Arrears Tolerance Amount (% of Outstanding Principal):

  • Default – the default tolerance percentage
  • Min – the minimum tolerance percentage
  • Max – the maximum tolerance percentage

You can enter positive values with decimals to any of these fields. If you leave all three fields empty, the Arrears Tolerance Amount (% of Outstanding Principal) will not be taken into consideration for loan accounts created from this product.

With a floor (minimum)

In addition to Arrears Tolerance Amount (% of Outstanding Principal), you can use the option With a floor (minimum), where you can specify the minimum in absolute terms rather than as a percentage of the outstanding loan balance.

Please Note
If you specify both an Arrears Tolerance Amount (% of Outstanding Principal) Minimum and a value for With a floor (minimum), only the latter is taken into account for loans created from this Loan Product.

If a partial payment that is below the With a floor (minimum) amount is made, the status of the installment changes to Partially Paid on the due date, not Late.

As an example, please consider the following loan:

  • a total of $1,000 dynamic loan
  • disbursement date: 1st Jan 2020
  • schedule: 5 monthly instalments
  • monthly repayments due on the 1st of each month
  • days of arrears tolerance period: 2 days
  • arrears floor: $100
  • the arrears days calculation excludes non-working days

A partial repayment of $120 was made on the 1st of February, and no other repayments were made since. On the 28th of April, the loan schedule looks as follows:

arrears-tolerance-schedule-with-floor

Since the account status in not In Arrears on the 1st of February, there is a bigger diference between the Days in Arrears and Days Late counters.

In our example, this is how the day counters look on the 28th of April 2020:

arrears-tolerance-days-floor

Please Note
The arrears tolerance percentage can be set on the account level (within the minimum and maximum specified for the product), whereas the floor can only be set on the product level and cannot be changed on the account level.

Editing Loan products

Loan Products which were created prior to the Arrears Tolerance Amount release will have no value in the Arrears Tolerance Amount field.

The values specified in Arrears Tolerance Amount are applicable only to newly created Loan Accounts.

Please Note
You can only edit/define these fields as long the account is in Pending state. Once the account state is changed to Approved, the fields cannot be edited anymore.

Any changes made to the Arrears Settings of the Loan Product propagate to all Loan Accounts with Pending status based on this product, regardless of whether the changes were made before or after creating the account. The changes to the Loan Product do not affect accounts with the status Approved.


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