Short answer
Payment allocation defines how an incoming payment is applied to fees, interest, principal or other components. The order must reflect product rules, institutional policy and accounting treatment.
Why this matters
This design choice directly affects correctness, control, integration and auditability.
Questions to answer before design
What is the system of record? Where do rules live? Which data is sensitive? What evidence must be retained? Who owns operations after go-live?
Frequently asked question
Is there one correct design for every organization?
No. Final design depends on products, policy, existing systems, data, risk and the institution’s operating model.