Use simple interest and contractual compounding
Understand when unpaid interest stays due, when it is capitalised and when the contract permits interest on that capitalised balance.
Check the agreement’s selected method
Simple interest has no automatic capitalisation. Contractual compounding needs the agreed capitalisation frequency and first capitalisation date. The collection frequency alone does not enable compounding.
Keep accrued and due interest separate
Accrued interest has been earned but is not yet due. Due interest is already payable. This version capitalises only due unpaid interest, not accrued-not-due interest or charges.
Check whether capitalised interest bears interest
Capitalised interest is a separate balance. Further interest is charged on it only when Capitalised interest bears further interest under the agreement is enabled. Do not infer that permission just because interest is unpaid.
Understand the same-date order
Interest is accrued to the date, scheduled collection makes it due, same-date transactions are applied, default/cure is evaluated, and scheduled capitalisation follows. A same-date receipt can therefore reduce the amount left to capitalise.
Review a simple illustration
A separate INR 100,000 agreement at 1% per complete calendar month earns INR 1,000 in month one. If that due interest is capitalised and bears interest, the next full month can earn INR 1,010, assuming no other events. Without that rule, unpaid interest does not automatically earn interest.
Use manual capitalisation only as agreed
Where authorised, choose Capitalise due interest in Advanced operations, enter the date and amount, then review and authenticate as requested. Check that due interest reduces and capitalised interest increases once, with no new cash movement.
Check your result
- Collection and capitalisation schedules are treated separately.
- Only due unpaid interest is capitalised.
- Capitalised interest is included once in outstanding debt.