Penalties

Penalties are charges imposed on customers for late payments or breaches of loan terms. These charges serve as a deterrent against late payments and help financial institutions manage risk and maintain cash flow.

Creating a Penalty

1. Navigate to the Accounting module

2. Under Accounting go to Penalties

3. Click the "+ New Penalty" button located at the top left

4. Provide the necessary Penalty information as outlined below

5. Click the 'Save' button to finalize and store the penalty

Penalty information Details

1. Name: Assign a descriptive name to the penalty

2. Grace Period (Days): The number of days after the due date during which the penalty will not be applied.

3. Category: Indicates whether the penalty applies to loans, savings, or both.

4. Charge Type: The method by which the penalty amount is calculated

   • Fixed: The penalty is a set, unchanging amount

   • Percentage: The penalty is calculated as a percentage

5. Value: Enter the amount to be charged based on the selected charge type. This could either be a fixed monetary amount or a percentage.

6. Recovery Method: formula used to calculate the penalty

   • (Overdue Principal + Overdue Interest) * Number of Late Days * Penalty Rate: This method applies the penalty to both overdue principal and interest.

   • Outstanding Principal * Number of Late Days * Penalty Rate: This method applies the penalty solely to the outstanding principal amount.