Calculate Finance Charges

This program can be used to generate an additional charge on the customer accounts that are overdue for payment.
Refer to the A/R Month End Procedure for procedural information and process flow.

Advantages of using Finance Charges:

Finance Charges are calculated on the overdue amounts owed by your customers.
If a customer does not pay his account within the terms specified (usually 30 days), then there will be less money available in your bank to finance your own expenditures.
This results in lost interest, or if overdraft is required, interest charged to your firm by your bank. In either case, there is a REAL cost to your firm for carrying overdue clients.

If finance charges are applied on the overdue accounts, this indicates to the client a specific measure of the carrying cost. This is also a reminder to the customer that the account is past due.
Develop a policy for dealing with customers which refuse to pay the finance charges.

Alternative 1:

Adjust (write-off) any unpaid finance charges if the customer does not appear to be paying them.
This approach is the "soft-sell" method of collecting the account.
The intent of the finance charge is to remind the customer of the lateness of the account, and if some customers pay, it is considered unexpected revenue.

For instructions on adjusting unpaid finance charges, refer to "Reversing A Finance Charge" under Post Finance Charges.

Alternative 2:

Leave the charges on the account until the customer pays.
This is a "hard-ball" approach which in some cases is justified.
The intent here is to push tardy clients into submitting payment faster to avoid finance charges which will NOT be written off their accounts.

Eligible for Finance Charges:

• Customers:
  Customers eligible for finance charges are flagged in the Finance Charges field in Customer Information.
  Government institutions and large corporations are generally not flagged, since they won't pay finance charges anyway.

• Invoices:
  The invoice must be overdue (the due date is older than the Finance Charge cut-off date) in order to be eligible for the Finance Charge calculation.

  Example: Cut-off Date is 03/31/20XX
  Invoice 34555 Due: 03/31/20XX will be skipped.
  Invoice 34453 Due: 03/30/20XX will be eligible.

Currency Exchange:

The finance charges will be adjusted by the currency exchange for any Customers having a currency code with a Currency Exchange rate setup in Currency Codes.
The Currency Exchange processing can be activated by the Texada Support in the Support Application Parameters.

Division Posting in the General Ledger:

• Posting Finance Charges to the G/L and to the A/R sub-ledger by divisions occurs only if the Activate G/L Posting By Division feature is activated in Support Application Parameters.
  The filters to generate and to post the Finance Charges for selected valid Divisions are provided and the Finance Charge calculation is based on the invoice Divisions.
  This process creates multiple Finance Charges on a customer's account if invoices are overdue from multiple divisions, and then posts them to the corresponding divisions in the G/L.
  The Finance Charge document number consists of the Division and Currency. e.g. FC/DIV1/C

  Note: If Finance Charges are re-calculated for a division or a selection of divisions before posting the last run, the Finance Charges to be billed will be over-written for only the re-calculated divisions.
  This means be very careful and always review the posting journal to ensure the calculated amounts and division selection are correct, prior to accepting and posting the Finance Charges in Post Finance Charges.

• If the divisional posting feature is not activated then the Finance Charges are posted for the run as a single total per customer to the Head Office (blank division) in the General Ledger and in the individual customers' accounts in the A/R sub-ledger.
  The Finance Charge document number is identified by Currency. e.g. FINCHRG/C

Note: Divisions are not limited to the operator's Divisional Restricted Views.

Finance Charge Reporting:

This Finance Charge Report can be run to identify Finance Charges that have been billed to the customer through the Calculate Finance Charges process, and to confirm whether they have been paid.

Setup and Calculating Finance Charges:

The default finance charge % and the finance charge minimum can first be setup in Company Information that can be accessed in the "Company & Divisions" parameters on the System tab of the Configure System Settings.
Run this Calculate Finance Charges program to flag the over due accounts and calculate the service amount to charge.

The prompts to generate the Finance Charges are:

CUT-OFF DATE

Accept the current month end, or over-type the date with a preferred cut-off date.
This becomes the posting date of the Finance Charges.

This date is checked to ensure it is within the current Date Range for ARIF, as defined in Date Range Control.

FINANCE CHARGE %

Enter the percentage of the finance charge. Enter 2% as 2.00
This value defaults from Company Information but can be over-typed.

MINIMUM FINANCE CHARGE

Enter the minimum amount for calculating finance charges, such as $1.00.
This value defaults from Company Information but can be over-typed.

If the finance charge calculated is below this amount, it will either be ignored (not billed to the customer) or the minimum will be applied.

BILL INTEREST ON PRIOR FINANCE CHARGES

Check this box to charge interest on any previous unpaid charges that have been levied.
Uncheck this box for finance charges to be calculated on the total amount overdue excluding any previous finance charges.

WHEN CHARGES ARE BELOW MINIMUM

Select one of:

• Select Bill Minimum to charge the minimum amount if the calculate amount falls below the minimum set.
  e.g. If the minimum amount selected is $1.00, and the finance charge calculated is less than $1.00, the customer would be charged $1.00.

• Select Ignore to prevent billing the customer if the calculated finance charge is less that the minimum set.
  e.g. If the minimum selected is $1.00, and the finance charge calculated is less than $1.00, then the customer would not be billed any finance charge this time.

All CURRENCY

Check this box to calculate finance charges on all currencies.
There will be a separate Finance Charge record for each currency per customer.

Uncheck this box to calculate finance charges on a single selected currency.

CURRENCY

Enter the specific currency for this run or select one from the drop-down list.

DIVISION, "ALL" OR "SEL"

This parameter is only available if the feature to Activate G/L Posting By Division is activated in Support Application Parameters.
Select one of the following:

• Type ALL to calculate Finance Charges for all divisions.
• To generate charges for a single division, leave this field blank for the Head Office Division, or enter a specific division code, or select a division from the drop-down list.
• Type SEL to select several divisions or divisions by accounting region, as outlined in Division Select By Region.

PRINT EDIT LIST

Check this box to print the optional edit list.

Uncheck this box to skip printing the edit list.
The information may be reviewed and deleted (if necessary) using Review Finance Charges without printing the Edit List.

Finished?

A printer can be selected from the Printer option located on the menu bar at the top of the screen.

Click the ACCEPT button to begin printing the report, or CANCEL to abort.

Finance Charge transactions can now be reviewed and adjusted in Review Finance Charges, and then posted in Post Finance Charges.
The Finance Charge Report can be used to review and manage the payment status of existing Finance Charges.

Finance Charge Division in Use by other Operators:

This security control only applies if the Activate G/L Posting By Division feature has been activated in Support Application Parameters.
If Finance Charges are being generated but charges have already been calculated by another operator as of any date for any divisions in this selection and they have not yet been posted, this conflict screen is triggered listing the Divisions and operator information of the previous unposted runs.
The details of the unposted calculation can be viewed in Review Finance Charges.

If the unposted information should be replaced by a new calculation for this division or division selection and the operator has a Security Role that gives permission to Reset Finance Charges then he can highlight the locked division record in the table and can click DELETE to remove the lock and proceed with the new calculation.
(The Finance Charge locking records are maintained in Posting Control File by division.)

Note: This locking control is not triggered if the unposted Finance Charge run had been generated by the same operator and division.
This allows an operator to run and re-run his own calculations repeatedly before posting a final run.
The operator is only questioned if he is re-running the calculation over another operator's work.

Grace Period for Finance Charges:

Some firms prefer to generate finance charges only on delinquent accounts.
For example, the customer's account would have to be 60 days or older before the first finance charge is applied to the account.
This can be achieved by controlling the invoice due date as Finance charges are calculated only on overdue invoices.

e.g. If your terms are 'NET 30', the invoice would have to be at least 30 days old before it would be eligible for finance charges.
To delay the application of the finance charges to 60 days, change the value in the Due Days field in Terms Codes to 60 leaving the description at 'NET 30'.

Note: All customers assigned that Terms Code would get the 30 days grace.

Advantages and disadvantages of giving a grace period by manipulating the Due Date include:

PRO:    -  Fewer finance charges will have to be written off.
CON:    -  Fewer finance charges will be calculated so less revenue can be collected.
        -  Internal invoice Due Dates not accurate as due dates now reflect the grace period.
        -  Less effective reminder that the account is overdue.