Repayment collection

When you enter a repayment, the amount of that repayment goes to the balances, meaning principal, interest, fees, and penalties based on the allocation method you set up in the Repayment Collection section of the Setting up new loan products form.

Payment allocation method

Allows you to define how the repayments should be posted in the repayment schedule.

Horizontal payments

When a repayment is entered for an account using Horizontal Payments it's the actual repayment schedule that will determine what should be paid first based on the due dates. The amount entered will always be used to pay each installment and only move to the next installment due, when the previous has been completely paid.

Fees and penalties are always associated to specific repayments and become due when that repayment also is due.

Vertical payments

Accounts using Vertical Payments will be paid based on the account balances of principal, interest, fees and penalties, following the allocation order defined in the product.

Payments are allocated based on the type of outstanding balance (interest, principal, etc) regardless of the repayment schedule.

Fees and penalties are not tied to a specific date. As soon as they are applied they become due and can be paid at any point in time.

Examples

For examples of each payment allocation method, see Horizontal vs Vertical Payment Allocation.xlsx.

Prepayments acceptance

Some organizations don't allow prepayments for certain products, such as those using Declining balance methodology. By default, Mambu will show the option to "Accept Pre-Payments". If you want to disallow prepayments for a specific product, click on the menu to select that option.

You have a set of additional options to configure for prepayments, depending if the product has Fixed or Dynamic schedule calculation.

Accepting prepayments of interest

Some organizations would like to allow their clients to pay in advance also the interest that is not due yet for upcoming installments.

• Accept Interest Pre-Payments (available for fixed and dynamic products, default selection).
  When you enter a prepayment, that is, a repayment transaction entered before or on the due date with an amount smaller than or equal to the total due, the interest accrued up to that moment will be applied and paid. The rest of the amount from that prepayment will be allocated to the principal. The prepayment will be entered in the current moment. This option is available for both fixed and dynamic product types. For dynamic accounts, the principal is reallocated based on prepayment allocation methods.
• Accept Postdated Payments (available for fixed products only from the UI, not via the API).
  This will post the repayments in different future-dated transactions depending on the payment amount for the fixed accounts. With this option, you will be able to enter future repayment transactions. This option is available at account level only, in the Repayment dialog, if there is nothing due on the account. When a postdated payment is logged, a Repayment transaction and the Prepaid Interest applied will be logged with a future date: the due date of the prepaid installment. The installment will be marked as paid in the schedule, and when the end of day processing will run on that due date, the Interest Applied transaction will also be logged.

Apply interest on prepayments

On dynamic loan accounts, when a prepayment is made, it is usually desired to collect interest first. However, for this to happen, interest has to be applied before the prepayment. By default Mambu is set to do this automatically. If you don't want interest to be applied automatically, you can choose to apply it manually. When manual is selected, a prepayment will cause interest to be applied after the payment.

Prepayments recalculation

For dynamic loan accounts, you can define if and how the account recalculates the schedule when you make prepayments. For more information, see Pre-payment Recalculation Methods.

When to mark an installment as paid

A prepayment is a repayment made before the due date that fully or partially covers the principal. When making prepayments on dynamic loans, you can decide when you want to consider an installment as paid. To reveal this option, you must have the following product setup:

• Product type: Dynamic Term loan
• Interest calculation method: Declining Balance Equal Installments (DBEI)
• Payments method: Standard Payments

Principal expected is paid (before/on due date)

If you select the principal expected is paid option, an installment is considered paid when the principal expected is paid. When you make a prepayment, Mambu applies and pays the interest accrued until that day. If the prepayment covers the interest applied on that day, plus the principal, the installment will be marked as Paid.

Full due is paid (on/after due date)

If you use the prepayment allocation on next installments, the full due is paid option is generally available.

If you use the prepayment allocation on upcoming pending installment only, with the two available prepayment recalculation methods (reduce number of installments and reduce amount per installment), then the full due is paid option is an early access feature.

If you select the full due is paid option, an installment is considered paid only when the full due amount, meaning the principal plus the interest due on the due date of that installment is paid. When you make a prepayment, Mambu applies and pays the interest accrued until that day. If the prepayment covers the interest applied on that day, plus the principal, the installment will still be marked as Late. The installment will be marked as Paid on or after the due date, when the interest due is fully paid.

Repayment Allocation Order

For cases of prepayments, partial repayments or fees and penalties payment, the allocation order defined at the product level will determine what will be paid first.

Suppose you wanted the principal to be paid first, then interest, fees and finally penalties. In this case Principal would be on top of the list and Penalties on the bottom.

To set the order of the items to be paid:

1. When setting up new loan products, go to the Repayment Collection > Repayment Allocation Order.
2. Drag and drop items to arrange them according to the order in which you want them paid on partial or overpayments.