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Repayment Example |
  
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Repayment Example |
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In this example assume that as at 26th February 2007, a customer's store account comprises the following transactions:
DATE DESCRIPTION AMOUNT BALANCE
20/05/2004 Invoice No. 248 $4,473.15 $4,473.15
02/06/2004 Invoice No. 249 $7,628.00 $12,101.15
13/07/2004 Invoice No. 250 $5,550.06 $17,651.21
17/08/2004 Invoice No. 251 $923.41 $18,574.62
27/09/2004 Cheque No. 345309 $4,393.51CR $14,181.11
18/03/2005 Cheque No. 345310 $2,311.52CR $11,869.59
27/06/2005 Invoice No. 252 $9,820.26 $21,689.85
08/11/2006 Invoice No. 253 $6,905.26 $28,595.11
Therefore the customer currently owes $28,595.11 before interest is taken into account.
You decide that rather than forgoing interest because it is too hard to calculate, you will use Calin Professional to not only calculate ongoing interest, but also proactively take control by preparing a specific repayment plan that the debtor must follow in order to avoid legal proceedings. The repayment plan will be specific as to amounts and dates so the debtor cannot claim to have misunderstood, and also, can be convinced that the interest being charged is the correct amount.
Also, where possible, the repayment dates will coincide with the debtor's paydays or other relevant recurring event.
These measures increase the prospects for a smooth repatriation of the debt, minimise the amount of work and stress on you, and maximise the client's respect and appreciation of your efforts,
Now assume that:
| ► | Today is 26th February 2007. |
| ► | It has been decided that the debtor must reduce the amount owing to $10,000 by Christmas 2007. |
| ► | The debtor has a substantial salary income and is paid fortnightly. |
| ► | He is to pay equal instalments every pay day. |
| ► | We have a copy of a payslip dated 10th May 2006 and know that subsequent paydays were at two-weekly intervals after that. |
| ► | The first repayment is to be on the first pay day in March. |
| ► | In addition to the regular instalments, the debtor must pay $5,000 on 30th May 2007 when he says he is receiving a lump sum that he can also put towards the debt. |
| ► | We will apply a simple 10% per annum interest rate with no compounding. |
Question: How much must the debtor pay and on what dates. Then prove that your calculation is correct.
This scenario is easy to handle using Calin Professional.
Step 1. Enter the transactions in the transactions editor, then press Ok.
Step 2. Open the repayment planner form.
Either repeatedly press the Next button on the main form until you see the Repayment Schedule option, or more directly, go straight to the Settings|Repayment Schedule... menu item on the main form.
Click Next.
Step 3. Select the second option as shown then click Next.
Step 4. Enter the date of the first instalment then click Next.
In this case we want the first repayment to be on the first pay day in March, but we don't know what that date is exactly. Calin Professional will calculate that for you using the Synch Date option. For now just enter the first day of March.
Step 5. Enter the repayment interval.
In this case repayments are to be made on each payday, 2 weeks apart so enter that.
The Synch date will synchronise repayment dates with that date. That is, the first instalment date will be guaranteed to be synchronise with the chosen interval.
In this case, enter the last known payday (10/05/2006). It doesn't matter that it falls outside the proposed repayment period.
Step 6. Choose the Specify end date method so we can enter that last acceptable day in the repayment period.
Step 7. The debt has to be paid by Christmas 2007, so enter that date now.
Step 8. Enter the amount that the debt must be reduced to. This will often be $0.00 but in this case we require the debtor to reduce his debt to $10,000. Enter that amount now.
Tolerance simply controls how even each instalment will be. It is best to leave it at the default value of $0.05.
Step 9 Enter the ad hoc additional payment ($5,000).
| ► | Click the Enter specific dates button. |
| ► | Click the + button to insert a new record. |
| ► | Enter the payment date and the amount. |
| ► | Click the tick button to save. |
Step 10. Iterations
How many tries should the program make to solve the problem before stopping? Under some conditions the program would loop forever without this limit.
You can usually keep the default value.
Step 11. Finish. Click Ok to return to the main form.
Step 12. Complete the calculation by clicking the Next button until you see the Results screen.
Depending on the speed of your computer, the calculation will take a short while to finish.
Click these links to examine the results.