Paying What Is Owed

When a payment is made for a loan:

• The service agreement's payoff amount is reduced by the payment amount.
• The service agreement's current amount is reduced by the payment amount.

The events that happen when a customer makes a payment against a loan is controlled by the FT algorithm plugged in on the loan service agreement's payment segment type. We'll use an example to help explain how this algorithm works. The 3 rd entry in the following table illustrates the financial transaction produced when a payment is made (note, the first two financial transactions were described above).

The financial transaction illustrated above is created if you use a payment segment FT creation algorithm of Payoff Amt = Current Amt = Pay Amt on the loan's payment segment type. The following explains how this algorithm works:

• The SA's current balance decreases by the amount of the payment amount. In other words, the customer thinks they owe 0 after the payment. Note refer to Overpayments for information about how an overpayment affects the SA's balances and the general ledger.
• The SA's payoff balance decreases by the amount of the payment. In other words, if the customer wanted to payoff their loan, they'd owe 9,602.95.
• The Cash portion of the GL accounting is straightforward (if you're an accountant). It simply takes the amount of the payment and debits it to the payment segment type's distribution code (typically cash) and credits it to the SA type's receivable distribution code (long-term receivable).
• The Transfer portion of the GL accounting effectively reduces short-term receivables by the FT's effect on the customer's current balance. This reduction is handled by an offsetting increase to long-term receivables (to make up for reduction made when the cash was applied). Again, this differentiation between short-term and long-term receivables allows the general ledger to differentiate between unbilled loan receivables (long term) and billed loan receivables (short term).