Bonds are letters of acknowledgment of debt by the company to its creditors, for which the company is obliged to pay the principal and interest periodically. For a bond company, it is a way to obtain external funding, namely funding from outside the company. The opposite of external funding is internal funding, namely funds obtained from internal companies including from owners or shareholders.
The company’s debts to creditors, namely those who buy bonds must be paid smoothly, but the company’s condition is not always stable so that they are able to pay their bonds on time and at a predetermined value. Sometimes companies don’t have enough cash to pay all of their bonds, but they are still able to pay some of the bonds that mature, so there are creditors whose funds they can pay off and some that the company can’t. In this case, there is a concept of priority payment in bonds called the waterfall payment or waterfall concept
The waterfall concept is the concept of paying debts in stages, in which creditors with higher levels get priority in full payment of both principal and interest, while creditors with lower levels will only receive lower priority, so that if the company’s funds are insufficient, they will only receive principal payments. only after full payment (principal and interest) is made to the main priority creditor. So the payment mechanism in this waterfall concept is tiered like a multilevel waterfall, creditors with the highest level take precedence over creditors with lower levels.
Example of Waterfall Payment
To clarify the understanding of this concept, we will discuss examples of this waterfall mechanism, namely:
The Wakanda company, which is well-known as a debt-ridden company, took out loans in the form of bonds to three creditors, namely Bank X, Bank Y, and Bank Z. The Wakanda companies arranged their bond scheme by dividing it into three levels, namely:
The bonds that bank X bought for 10 million dollars at 10 percent interest per year were the first rate.
The bonds that Bank Y bought for $6 million at 10 percent per annum were the second tier.
The bonds that Bank Z bought for $2 million at 10 percent per annum were second tier.
So in the second year the interest to be paid by the Wakanda company is $1 million for Bank X, 600 thousand dollars for Bank Y, and 200 thousand dollars for Bank Z.
The debt repayments in the first year are:
Payment of principal at Bank X is 10 million and interest payment is 1 million dollars.
Half principal payment to Bank Y was $3 million, and interest payment was $600,000.
Not paying interest and principal to Bank Z, so he owes 200 thousand dollars in interest.
So that the bond at Bank X has been repaid, at Bank Y there is still 3 million dollars remaining, while at Bank Z it is worth 2 million dollars with an interest debt of 200 thousand dollars. In the second year the Wakanda Company again paid its bonds, namely:
Pay off $3 million in principal, and pay $300,000 in interest to Bank Y.
Paid $2 million in principal and $200,000 in interest, and paid off last year’s $200,000 in bond interest.
So in the second year all the bonds issued by the company to these three creditors were successfully repaid.
Benefits of the Waterfall Concept
The Waterfall Concept provides benefits in the form of flexibility in bond payments, so companies can more easily manage their cash flows in order to pay debts or bonds to creditors. If the company does not have sufficient funds to pay all debts the company does not need to pay the full value of the payment, they can pay only part of their obligations that are due. For creditors, the waterfall mechanism gives them a choice of risk, bonds or debt with a higher priority level means a distribution of funds that has a lower risk, but is usually offset by a lower interest rate. If they want a lower level of risk they can buy a lower priority bond, which usually earns a higher interest rate.
The Waterfall Concept is one of the most popular and oldest models in the SDLC (Software Development Life Cycle). SDLC (Software Development Life Cycle) itself is the life cycle of the development of a system. In software engineering (systems), SDLC is the process of creating and changing systems and models for developing the system. SDLC is needed and used in producing a high-quality system output according to user expectations. The Waterfall Concept is a model in the development of application systems using systematic and sequential phases, where each stage will be completed from top to bottom, if the analogy is lik
The Waterfall Concept was first introduced by Herbert D. Benington on June 29, 1956 at a symposium on program development methods for digital computers, but in 1983 it was presented regarding the development processes. It was only in 1985 that the US Department of Defense (United States) first used this Waterfall system with several stages (phases), namely:
Requirements
At this stage, preparation and analysis of the needs are carried out for the application to be carried out. Information or data obtained can come from interviews, literature studies, observations, surveys or discussions.
Design
It is the process of making an application design before the coding process is carried out. The purpose of this stage is for the application to have a clear interface and appearance. In this stage, the focus will be on developing data structures, interface design, software architecture to procedural algorithms.
This stage is the implementation of the program code using a programming language (tools) that is tailored to the needs of the company. At this stage the focus will be on technical matters such as software design which will be processed by the developer in the form of programming language translation.
Verification
Is the stage of integration and system testing (Integration and Testing). At this stage, the module will be merged, after completion it will enter the Testing or Verification stage. The goal in this stage is to find out whether the integration process has been completed. The parties in charge of conducting verification and testing are QA (Quality Assurance) and QC (Quality Control).
Maintenance
This is the last stage, namely the operation and improvement stage of the application. After testing, the next step is to enter the use of this application by the user. If there are still errors in the application, the developer will fix them.
Advantages of the Waterfall Concept
The results of the documentation are quite good
The waterfall method is a very methodical approach so that it has a very clear and measurable system workflow.
Save cost
In terms of resources and costs, this model is relatively cheap because the client cannot provide feedback or input to the development team.
Clear workflow
Each team will carry out their respective duties and responsibilities according to their expertise so that the system flow in this model is very clear.
Can be used to develop large-scale applications
This system is suitable to be applied in the manufacture of large-scale systems that require a lot of human resources and complex work processes.
Disadvantages of the Waterfall Concept
Less flexible
Is a software development that is less iterative and less flexible because the processes in it cannot be done simultaneously, the process can only be done in one direction.
Need a solid team
It takes a team with good coordination and cooperation because if the team doesn’t work together, one mistake made will affect the system as a whole.
Can’t see the system picture clearly
This model does not provide a clear system description for users so it is quite difficult to carry out the repair stage if there are errors.
Requires a relatively long time
The waterfall model is a model that requires a longer process than other models because the process is done one by one, it cannot be done simultaneously.
