How does Income clear payments and allocations?

There has been some confusion with our payment clearings and allocations. In this blog post, we’ll take a closer look at the API connection between Income and the Loan Originators’ Loan Management System (LMS) and how we handle borrower repayments. We aim to provide transparency and clarity on the cash clearing methods that Income and the LO use and what it means for our investors.

An API connects Income to the Loan Originators LMS (Loan Management System). When borrowers make repayments, Income receives cash from the borrower repayments either fully or partially. The LO allocates these payments to principal, interest, and fees in their system. This allocation data is passed to Income through an API connection, usually immediately after Income receives the funds. Investors will instantly get a proportional part of the principal and all accrued interest in those cases. The agreed cash clearing method (Partial vs. Full) refers to cash movement and depends on the jurisdiction of the LO and on the practicality and costs of transferring cash in different jurisdictions. 

Full cash clearing. 

In this case, Income receives 100% of the funds from the LO that has come from the borrowers and the allocation table for these payments. Once Income has received both the funds and the allocation data, the allocation on our system is executed, and the funds are paid to the investors’ investment accounts. The leftover funds, after investor payments, that belong to the LO (junior share part and profit) are then sent back to the LO at the settlement dates.

The steps taken in this clearing method are:

  1. We receive 100% of the borrower repayments to their loans
  2. We receive the allocation data through the API
  3. We settle it in our system both to correct loans and investors
  4. We send the “leftover” funds back to the LO.
Partial cash clearing

In this option, Income receives from the LO the amount of funds needed to satisfy investor payments, and the LO retains the junior share part and its profit part.

The steps taken in this clearing method are: 

  1. We receive the allocation data through the API and update the loan schedules in our system. At that moment, our system may mark the loan as “Paid back” when the final payment has been transferred to the LO account by Borrower.
  2. We send the information to the LO on the required amount of funds needed to satisfy the investor payments.
  3. The LO sends us the required funds, which we allocate to the investments during Clearings (usually twice a week). 

We are in the process of improving the partial cash clearing process as currently, there may be situations where a loan displays a repaid status while the investment schedule is still open before we receive the cash and allocate it to investors. Generally, this difference is visible in the system only for some days until the next clearing day we receive the cash. We are aware that this could be better and may cause confusion among investors. The functioning of junior shares is not affected by this, and we strive to keep the real-life loan schedules and investment schedules in perfect sync.

At Income, we understand the importance of clear and efficient cash flow management. Our API connection with loan originators’ LMS ensures quick and seamless processing of borrower repayments, and our cash clearing methods are tailored to the jurisdiction and practicality of transferring funds. With our Full and Partial cash clearing methods, we prioritize our investors’ returns and strive to keep loan and investment schedules in perfect sync. We are constantly improving our processes to provide the best possible service to our investors. 

Invest with Income today and enjoy hassle-free investing with transparent cash flow management.

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