Payment Policies ================ Finance Charge -------------- Charges that are past due as of the 1st of each month will have a finance charge applied to the outstanding balance. (In practice, a grace period will often extend to the 15th of each month for receiving payment.) The amount of the finance charge is calculated as follows: - we find the current prime rate at http://www.nfsn.com/library/prime.htm - add a number of percentage points, usually 15% (see below) - divide by 12 to obtain a monthly rate - apply that percentage to the current overdue balance - round down the the nearest whole dollar amount. The final step ensures that a small outstanding balance, less than $50 or so, will not incur any finance charge at all. Example: Suppose a customer's monthly charge is $100, and they are paid up. On the 15th of January, we send out a bill reflecting their rent for February, which is due February 1st. If we do not receive a payment of $100 by February 15th, we will assess a finance charge. If the current prime rate is 6%, the total annual percentage rate would be 21%, or $21. We divide by 12 months and round down, for a finance charge of $1. The prime + 15% rate is the default. Customers who are in financial difficulty are encouraged to contact us to discuss a reduced long-term rate. We are happy to reduce the finance charge interest rate, depending on our judgement of the credit risk the customer represents. Example: Suppose a customer owes a large balance, and we have very high confidence in their willingness and ability to eventually pay. The only way they could pay the whole balance immediately would be to use a credit card, at an interest rate of prime + 12%. We can borrow money from our home equity credit line at approximately prime + 0%. Rather than paying the credit card company that interest, we split it with the customer by charging them a finance charge of prime + 6%. The customer agrees to pay off their balance either in installments or when their ship comes in. Bulk Payment Credit policy -------------------------- Each payment of at least 2.5 times the customer's monthly current monthly rent earns a bulk payment credit. The amount of the bulk payment credit is $5 for colocation and managed server customers, and $2 for hosting customers. A customer earns a credit for each full month's rent paid in bulk. credit = payment / monthly rent (round down) x $5 for colocated or managed server OR x $2 for hosting Example: The same customer whose monthly charge is $100 pays $300. They receive a $15 bulk payment credit. The credit does not depend on when the payment is made, nor on what the customer's balance happens to be at the time they pay. Example: Suppose a customer whose monthly charge is $100 has a positive balance of $30. They pay $260. They receive only 2 months of credit ($10) because $260 / $100, rounded down, is 2. The $260 payment + $10 credit + $30 balance adds up to $300, covering them exactly for the next 3 months. Advance Payment --------------- The combination of the finance charge and bulk payment policies results in a situation that rewards customers who make large payments in advance. To derive the maximal benefit, pay 3 months in advance before your balance drops to a level where finance charges would be incurred. Unlike the previous advance payment credit policy, however, the credit is based solely on comparing the amount of the payment to the amount of the monthly charge, so past credits will not reduce the amount of payment needed to obtain the full credit in the future until either some time has passed, or you pay for a partial month which will not qualify for the credit. Example: Suppose the customer does not pay for 3 months. In February, March, and April, their finance charge will be $1, so at the end of April they would owe $303. They pay $300 and receive a bulk payment credit of $15. Their final balance is $12. As you can see the bulk payment credit is much larger than the finance charge, unless a customer accumulates a large negative balance.