How arrears are calculated
The exact formula, grace days, the base it applies to, and why arrears are never "stored".
Arrears are the surcharge that builds up when an installment falls due and is not paid. This article explains exactly how Prestafolio computes them, so you can explain it to your client without hesitating.
The formula
Step | How it is computed |
|---|---|
Days late | Today − the installment date (whole days) |
Chargeable days | Days late − grace days |
Arrears | Pending installment × daily rate × chargeable days |
Three things define the behaviour:
- It is linear, not compounded. Yesterday's arrears do not generate arrears today. Each day adds the same surcharge.
- Grace is a strict threshold. There are arrears only if days late exceed the grace. With 3 grace days and 3 days late: arrears = 0. On the fourth day it starts running, and it charges 1 day, not 4.
- If the rate is 0, there are no arrears. A loan with no arrears rate configured never accrues a surcharge (see Setting the arrears rate).
Days are counted whole, midnight to midnight (not by the hour): a payment at 11 p.m. on the due date is not late.
A worked example
A loan with a 1% daily arrears rate and 3 grace days. Pending installment: RD$5,000. The client shows up 10 days after the due date.
Step | Maths | Result |
|---|---|---|
Days late | 10 days | |
Chargeable days | 10 − 3 grace days | 7 days |
Arrears | 5,000 × 1% × 7 | RD$350 |
Total to collect | 5,000 + 350 | RD$5,350 |
How the same case evolves:
Days late | Chargeable days | Arrears | Total to collect |
|---|---|---|---|
2 | 0 | RD$0 | RD$5,000 |
3 | 0 | RD$0 | RD$5,000 |
4 | 1 | RD$50 | RD$5,050 |
10 | 7 | RD$350 | RD$5,350 |
30 | 27 | RD$1,350 | RD$6,350 |
The base it is applied to
The base is the pending installment of the overdue period: not the whole loan, not the principal. And it subtracts any ongoing partial payments on that installment.
Same case as above, but the client had already paid RD$2,000 toward that installment:
Step | Maths | Result |
|---|---|---|
Pending installment | 5,000 − 2,000 already paid | RD$3,000 |
Arrears | 3,000 × 1% × 7 | RD$210 |
Paying something down reduces the arrears that keep running. Useful leverage when negotiating with a late client.
Arrears are not "stored": they accrue
Prestafolio never stores an arrears balance. It computes them on the spot when showing or collecting them, using today's date.
Three practical consequences:
- The arrears you see in the arrears list are what the system proposes as of today. They are always fresh: never an old stored number.
- If the client pays tomorrow, the arrears will be higher: recomputed automatically. Nothing to "refresh".
- If you change the loan's arrears rate, the arrears are fully recomputed with the new rate (no old arrears stay "frozen" at the previous rate).
What the system proposes vs. what you actually collect
The fact that arrears are computed for you does not mean they are untouchable. It depends on where you collect from:
Where you collect from | Who sets the arrears? |
|---|---|
From Arrears | The server. Exactly the projected arrears are collected; you do not type them. |
Normal loan collection | You. The Arrears field comes pre-filled with the projection, but it is editable: you can lower it or set it to 0. |
You. Each row has its own arrears field and it comes in blank: type nothing and zero arrears are collected. |
Put plainly: in the normal collection and in bulk, the number that gets saved is whatever is left in the field when you confirm, not what the arrears screen shows. That is deliberate: it lets you negotiate and waive arrears without leaving the system. But it also means that arrears left blank by mistake are simply not collected.
What happens to collected arrears
Arrears are added to what you collect, never deducted from the installment:
- They go into the cash drawer alongside principal and interest (it is cash received).
- They are recorded as loan profit.
- In the ledger they have their own account: Penalty Income, separate from Interest Income, so you know how much of your profit comes from surcharges.
Several overdue installments: the system projects ONE
This is worth stating precisely, because it is the most misread part:
Prestafolio projects the arrears of a single installment: the current overdue one, that is, the oldest unpaid installment. It computes them on its pending amount (net of partial payments) and from its own due date.
Even if the client owes three installments, the arrears you see in arrears and in the loan detail are that installment's, not the sum of the three. The system does not pile up arrears installment by installment.
Practical consequence in bulk collection: bulk does not compute arrears for you. Every row carries a blank arrears field, and whatever you type there is what gets collected. Leave it empty and that installment is collected with no arrears.
How to work with this:
- Collect the oldest installment from Arrears: there the server sets the arrears and they are collected in full.
- Repeat: once it is settled, the next overdue installment becomes the current one and the system projects its arrears.
- Or use bulk and type by hand the arrears you decide to charge on each installment (for example, the ones you negotiated with the client).
See also: Setting the arrears rate, Arrears, Bulk collection.