Ideally, A's credit is discounted and B can only relieve $7 of their debt to you with the $10 A-note (or whatever you value A's debt at). They can choose to take it, or try to collect their $10. Eventually, as people's value of A's debt goes down, splitting a bill with A makes them take a larger portion of it because of their "default" risk.
In person, A thinks that's bullshit and immediately refuses to pay anything, out of principle. People stop splitting with A unless he has the cash on hand and eventually have to kick him out of the house.
Not saying the app works that way. In fact, that's probably why the app doesn't work that way.
Unfortunately it doesn't work that way. I will say that it would be nice if you could choose to charge interest on debts not repaid after X amount of time. I don't enjoy acting like a 0% interest bank but it's better than not getting paid at all. Before I would just forget or give up trying to "collect" but now there is a ledger and I know I will eventually get paid. The cool thing about Splitwise is it makes it really easy to buy things for the group as a way to pay off debt. For example: One of my roommates was behind on their debts and so every time they had a little money they would buy some/all of the groceries on the list and then put the bill in Splitwise. In this way 2/3rds of the cost of the bill was applied to their debt and they slowly paid it off. In my experience this is a much better way to collect as they see benefit from from it as well (food) and it feels less like just having to hand over money to the lender.
EDIT: As it turns out they have an API [0] so I guess I could write something that would auto-add "bills" for interest if I wanted to but my current setup works fine ATM and I feel like some of my friends would not be happy with being charged interest :).
Jon from Splitwise here. Yep - we don't include interest rates or try to price debt transfers, because we want to keep things casual. The "debt simplification" is an awesome feature but is not on by default because some people have differing levels of trust with different friends.
We do send monthly reminders to make sure people are good about either paying back or picking up the check next time. People often just use it to keep track of who should pay next and that is the way I primarily use Splitwise personally. With good friends, Splitwise is just a way to let our balance roll and figure out who should pay today.
With more distant or very diligent friends who don't like being in debt, they settle up right away and like the monthly reminder emails. To each his or her own!
We have our API just for things like this. I actually have personally borrowed money with interest (a large amount to pay off a credit card) from a friend, and tracked the debt, payments, and interest on Splitwise. We did repayments via PayPal and I added interest each month using my own calculations. We were both very happy and it's been paid off for a while now.
If someone wrote a general Splitwise interest-on-your-balance app (I would make it be opt-in for friends who agreed, with 0% still as the default for balances) on our API, that'd be awesome.
Thanks Jon! When I get some free time I might play with the API a little bit. I'm sure flat interest % for balance at the end of the month (or any other point in time) would be fairly simple but I would want to take it a step further. I would like it have a "grace period" of X months (or X time intervals) from money lend date before interest kicks in and even then you would only be charged interest on money that hadn't been paid in X time intervals not all you owe. Of course this would be much more difficult than a simple:
$interestBillAmount = $amountOwed*$interestRate
That ran each month. Anyways keep up the great work, I use Splitwise all the time and it's a huge time and stress saver!
You don't have to enable "Simplify Debts" also debts are only simplified within a group of friends that you control. I have a group for my roommates (which makes it easy to just apply rent/utils to a group) who I trust to pay me back. I wouldn't join a group with a deadbeat or invite one to join one I am a part of.
What happens if I'm person C, B is a decent guy but A is a deadbeat? I lent money to B, not A, and can't be bothered to hunt down A for my cash?
Or is that what's implied in "when enabled"?
(Yes, I have (mostly past) friends like that and yes I've been in that exact scenario, unassisted by any apps.)