Loan Penalties are calculated differently as per the defined Loan Products set at System/Configuration/Products. Loan Performer offers several options for penalty and automatic penalty calculation for different products.
Note that before you can be able to view the penalties charged vs penalties paid report:
Please note that Loan Performer does not include the due date in the penalty period. That way if a loan is due on the first of the month and is not paid then, for example, you calculate penalties on the fifth of the month, Loan Performer takes 4 days as the penalty period.
Setting loan product penalties
To configure loan penalties you go to System/Configuration/Loan Product Settings/Penalties. The Penalties page is displayed and looks as follows:
Loan Product: Select the loan product from the drop-down box, e.g., "Agricultural Loans".
Loan Performer supports 6 methods of penalty calculation as shown below:
1. Penalties calculated as a flat amount per day:
To enable Loan Performer to calculate penalties automatically using this method you have to define the following:
Penalties on holidays and weekends: If the option is not activated (marked), Loan Performer will disregard holidays and weekends according to the way you defined them in the menu System/Configuration/Set Working Days.
Penalty amount per day/period: Enter here the amount you would want your clients to be charged for every day their loans are in arrears.
Penalties should be calculated until xx months after Expiry Date: Please indicate here for how many month/days after the loan expiry date/after the due date you would want Loan Performer to keep adding penalties to the loan account. If a client doesn't pay, there is no use in "counting oneself rich".
Grace period in number of days before Penalties should be added: You can set here a number of grace days, which Loan Performer will deduct from the number of days in arrears before calculating penalties. Defaulters with less than the specified number of days in arrears won't get a penalty.
The method considers the number of days the loan is in arrears. The penalty is calculated based on the following formula:
(Number of days in arrears x Penalty amount per day)
Example:
To charge penalty you go to Loans/Penalties on arrears and set the necessary parameters on the following screen:
You click on the Calculate button to display the penalties that are due for the period
If you are agree with the penalties calculated, click on the Yes button of the message dialogue box to book the amounts on the GL accounts defined on the other tabs of the window.
The penalty charged report will appear as follows;
2. Penalties calculated as a Flat Amount per Occurrence:
If you choose this method, then each time you run the "Penalties on Arrears" module, the amount you indicate in the "Penalty amount per day/period" text box will be added to the client's loan account.
Example:
To charge penalty you go to Loans->Charge penalty and set the necessary parameters on the following screen:
You click on the Calculate button to display the penalties that are due for the period
The penalty charged report will appear as follows;
3. Penalties calculated as a Percentage over the period:
This method considers the number of days the loan is in arrears.
Penalties are calculated as: (Number of days in arrears/Number of interest days in a year) x Amount in arrears x Percentage.
Note that the Penalty should be entered as an annual percentage.
The amount in arrears can be either of the following (you have to select the appropriate):
- Principal in arrears only
- Principal and interest in arrears
- Principal, interest and penalties in arrears
Set penalty percentage at loan application: If this option appears when the option "Penalties calculated as a Percentage over the period" is selected, it allows the user to set penalty percentage at loan application as seem above.
Penalty calculated for each late installment: If this option is selected, penalties will be calculated based on the sum of days of each late installment is in arrears but one amount will be posted depending on the date of penalty computation.
Example:
To charge penalty you go to Loans->Penalties on arrears and set the necessary parameters on the following screen:
You click on the Calculate button to display the penalties that are due for the period.
The penalty charged report will appear as follows:
Minimum penalty amount to be added to accounts: If the total penalty amount calculated by Loan Performer is less than the amount indicated here, no penalty will be added to the client's loan account.
Note that 1. If you choose the option Penalty calculated for each late installment then the amount of penalties will be calculated for each late installment separately up to the number of days indicated in the Penalties should be calculated for a maximum ............., e.g., "12".
The other definable options for this method are the same as above.
4. Penalties calculated as a simple percentage:
This method does not consider how long the loan is in arrears but just calculates the Penalty as (Amount in arrears x Percentage).
The amount in arrears can be either of the following (you have to select the appropriate):
- Principal in arrears only
- Principal and interest in arrears
- Principal, Interest and Penalties in arrears
Note that the Penalty here should be entered as a simple percentage.
Example:
To charge penalty you go to Loans->Penalties on arrears and set the necessary parameters on the following screen:
You click on the Calculate button to display the penalties that are due for the period.
The penalty charged report will appear as follows;
The other definable options for this method are the same as above.
5. Penalties calculated on weekly basis:
This option has two sub-options:
a. Penalties calculated as a simple percentage:
The penalties are calculated on a weekly basis.
Example:
There is a loan with 4 weekly installments and the first installment is due on the 08/01/2014. If the first installment is not paid on time, then on the 09/01/2014 it will be considered one day late and not a week late, so the customer will not be charged any penalties for the first week.
Note that the weekly penalty will start being charged when the loan is one week is arrears.
On the 15/01/2014 the loan will be considered one week late. Therefore the customer will have to pay the penalties dues for one using the following formula:
Amount in Arrears x Percentage x Number of weeks in arrears
You click on the Calculate button to display the penalties that are due for the period
The penalty charged report will appear as follows;
b. Penalty based on installment amounts:
The method is similar to the one above, but the amount due for each week is calculated according to a given fixed grid. Different penalty rates can be applied to different amounts in arrears.
Selecting this method gives you access to the Set/View penalty amount classes button.
Press that button and that will bring you to the next screen: Penalty based on installment amounts, where you will be able to set the penalty percentages for particular ranges of arrears amounts.
Enter the Minimum amount, e.g., "50,001" and the Maximum amount, e.g., "500,000" for a particular class. Then enter the penalty percentage for this class in the Penalty charged text-box, e.g., "15" and click Add.
Note that the ranges should not overlap.
6. Penalties calculated as a simple percentage of the outstanding balance:
This method considers the outstanding balances and charges a fixed percentage at a given time. The penalty is calculated based on the following formula:
Outstanding Balance x Percentage.
Automatically calculate penalties:
This option uses the “LPF Service” tool found at Control panel\Control panel items\Administrative tools\Services\LPFServices. Make sure it is Started. Then at logon of LPF, the system will automatically calculate and post penalties to the respective sub ledgers and the GL account.
Automatically calculate penalties at logon: Tick this checkbox to enable Loan Performer to calculate penalties at logon. This means that whenever you logon, LPF will automatically calculate penalties on qualifying loans and update the ledgers depending on the penalty calculation methods that you have defined above. Ticking this option activates the various options.
Automatic penalty calculation:
Calculate penalties on capitalized interest and penalties in arrears:
Calculate penalty if the days in arrears are past the grace period:
Include loans with dues on reporting date:
Automatically transfer funds from savings accounts to loan accounts: Tick this option to automatically repay a loan from a given savings product
Note that in lower versions, LPF provides the option to repay loans from savings at the Loan Repayment menu screen. It also allows the user to automatically repay dues and arrears from savings but this is with user-intervention. In LPF8.16 it is possible to automatically transfer funds from the savings accounts to the loans accounts without user intervention and even on holidays and days that the office is closed.
Step2:
Start the LPFservice under Control Panel\Administrative tools as follows:
Step3:
Start running LPF and the Automatic Transfer of Savings to Loan Accounts will be executed and the balances correctly updated even without user-intervention.
Step4:
With user-intervention, and If the menu option, “Repay arrears from savings” is used, this is how LPF calculates the amounts to be repaid from savings.
[Click to Resize Image, Doucle click to return original size]
With the new enhancement, “Automatically Transfer Funds from Savings Accounts to Loan Accounts”, LPF automatically calculates the Savings amounts and transfers this to the Loan Accounts. No user intervention is required.
Savings Product:
Use Minimum Balances:
Minimum Arrears Days:
Click on the Save button to save the penalty settings and on the Close button to exit the menu.
Note that you can View/Print the parameters of the penalties configuration and keep them for future reference
by clicking on the Print button.
