Distributing A Payment Amongst An Account's Contracts
A payment must be distributed to one or more contracts for its financial impact to be realized. When a payment satisfies an account's entire debt, you don't have to worry about how the system distributes the payment. The concept of payment distribution is only relevant when a partial or excess payment is distributed.
The first important point to understand is that the method of distributing a payment amongst an account's contracts is contained in an algorithm that's plugged in on to Customer Class. This means that you can have different distribution algorithms for different customer classes.
The following explanation describes one of the base package payment distribution algorithms (refer to Payment Distribution - Pay Priority and Debt Age for information about this algorithm). This algorithm distributes a payment based on:
- The age of each contract's debt.
- The payment distribution priority of each contract's contract type.
The following diagram helps illustrate how the distribution algorithm works.
The above example shows three columns, one for each contract linked to a hypothetical account. Notice that two of the contracts have the same distribution priority, the third has a lower priority. The numbers in the cells indicate the order in which the system distributes a partial payment.
The following points describe the algorithm used to distribute the partial payment:
- The system pays off delinquent debt of the highest priority contracts first. In the above example, where multiple contracts have the same distribution priority, the system does NOT payoff one contract before it starts on the next (which one would it pick?). Rather, it distributes the payment amongst the contracts based on the age of the respective debt on each contract. In the above example, this is represented by steps 1 through 6 (notice how the distribution jumps between Contract 1 and Contract 2).
- After all delinquent debt has been relieved from the highest priority contract(s), the system pays off the next priority until all delinquent debt is relieved. In the above example, this is represented by steps 7 through 9.
- The system next pays off non-delinquent debt using each contract's respective distribution priority. Note well, the payment distribution algorithm doesn't associate an age with non-delinquent debt and therefore the distribution is based purely on the contracts' respective distribution priority. In the above example, this is represented by steps 10 through 12.
- After all non-delinquent debt is relieved, the system next pays off "new debit" debt based on the contracts' respective distribution priority. In the above example, this is represented by steps 13 through 15.
- Refer to Overpayment for a description of what happens if money still exists after the above distribution is complete.