Processing Customer Payments

[Neil Williams]

On Thursday 31 March 2005 7:28 pm, Mark Johnson wrote:
> Neil Williams wrote:
> >Compare it with your bank statement or credit card statement. You pay off
> > a portion of the balance and what is left is subject to interest. You
> > don't pay interest on the oldest transactions only, you pay interest on
> > the *balance*.
>
> May I suggest you re-read your credit card agreement.  I don't know
> about other countries, but here in Canada, this statement is not true.

It varies between credit companies but the wise borrower does read such 
things!

31/12 zero balance (yes, I know, bear with me!)
1/1 £100 charge
14/1 £50 paid (regular monthly payment)
17/1 statement prepared. You now have 28 days to pay the remaining £50.
17/2 interest if calculated on the £50.
1/3 You pay the full balance.

You've had £50 credit for two months and been charged interest on £50 for only 
one month.

The point still remains though. Your credit company, irrespective of how they 
charge interest, always sets your payment against the oldest transaction 
until that transaction is paid in full and then moves on to the next. It does 
NOT try to attribute your payments against individual transactions. It works 
on the running balance.

> If you do not pay off your balance in full, you will be charged interest
> on everything.

No, not if you are careful. You start with a carried balance, that gets some 
transactions added. Then your payment is credited. The interest is the 
interest calculated on *the preceding period*. Don't forget the lieu period 
where you get (~)54 days without charge.

You pay for the goods the day after the statement is issued. You wait 28 days 
for the next statement to be generated. That statement informs you of the 
balance and you have 28 days to pay it before interest is charged.

It's complicated because most people are always adding transactions. It's hard 
to see the pattern until you pay off the entire balance, wait a month to get 
either no statement or a zero statement, then charge a transaction and don't 
charge anything else until that is paid.

In the morass of continuous transactions, special offer rates, cash advances, 
refunds, carried balances, small regular payments but large individual 
transactions, it can be impossible to see the wood for the trees.

Some bad companies charge on the whole of the oldest transaction amount until 
that oldest transaction is paid off in full. If you habitually pay for single 
items (or single shopping sprees that are charged as one item) that are 
regularly larger than your monthly payment, you will be losing out with a lot 
of credit companies. It would be wise to make your monthly payment larger 
than the average cost of your transactions. 

If you can't change your company, change your behaviour: If necessary, (and 
this will *really* get up the noses of the retailers on this list, but I am 
one so tough!), charge your goods *separately*. If you have one of these 
agreements that continues charging interest until the oldest transaction is 
paid in full, make sure each transaction is small. Go back to the counter 
twice. Pay for one lot of goods and go to a different desk in the same store 
to pay for other kinds of goods. Don't buy a single item costing mega-bucks. 
Buy the components, buy from different places - even if they are the same 
price. The retailer may pay the bank charges for processing your card twice, 
but is that your problem?!?!

Those who haggle and hunt get the best deal. Those who take the convenient 
route of letting the credit company work out the details PAY through the 
nose.

> If you do pay off your balance in full before the grace 
> period expires, no interest is charged.

True.

> Thus, if you charge $1000.00, 
> and make a payment for $999.00, you are charged interest on all the
> charges from the date they are made until the payment.

Not necessarily. Bad credit companies may do that but the canny borrower knows 
who they are. You charge £100 and pay off £50. Your interest is calculated on 
£50 - that is all that is charged to the account when the statement is 
prepared. You don't have credit for £100, you have paid £50, therefore the 
charge is on the credit remaining at the end of the lieu period.

Some companies will charge according to whether the oldest transaction is paid 
off in full - be careful of that as if you make a charge at the start of the 
month that is LARGER than your usual monthly payment, you will get charged on 
the entire transaction DESPITE what you have paid!! With these bad companies, 
it's almost best to KEEP your money until you can clear the oldest 
transaction in one go!

Note however, that this is still applying the payment to the oldest 
transaction (invoice) first. It does not attempt to match a payment against 
an invoice. Most businesses simply cannot operate in that manner and it would 
be a mistake for users to assume that this can be implemented outside their 
own accounts. It is always worth comparing your systems with those of larger 
businesses, there are trapdoors out there to catch the unwary.

> It would be interesting to see if other countries have more consumer
> friendly credit card agreements.

Check out your own country carefully - these agreements do exist and it is 
only a lack of consumer interest that perpetuates the disreputable 
agreements. That and a lack of access to decent credit by dint of a poor 
credit history. The poorest always have the worst credit agreements. Those 
with the best credit get the best terms. Make your money work for you, not 
for the credit company, that's some other mug's job!

-- 

Neil Williams
=============
http://www.dcglug.org.uk/
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http://www.biglumber.com/x/web?qs=0x8801094A28BCB3E3

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