Assignment Definition Finance Charges

You can calculate finance charges against past due debit items for each customer or site when you generate dunning letters or statements. Finance charges are calculated based on the remaining amount due of open and past due debit items, and include credit items as of the dunning or statement date.
You can calculate finance charges without actually generating statements by using statement sites. To do this, assign an appropriate statement cycle to your customer level profile, but set the Send Statements option to No and the Calculate Finance Charges to Yes for the customer sites.

Finance charges are calculated from the last time they were computed for each customer. For example, you usually calculate finance charges for all of your customers on a monthly basis. If you last calculated finance charges on March 31, 1993 and you calculated it on May 31, 1993, Receivables calculates finance charges from March 31 to May 31.

For each customer or site, you can specify the interest rate for each currency, the number of days to which your interest rate refers, and the number of receipt grace days.

Accrue Finance Charges

To collect finance charges from your customers, define Receivables to accrue interest for past due items. Accrued interest updates the amount due remaining for the past due debit item. See: Accruing Finance Charges.

Adjust Finance Charge Calculations Based on Receipt Grace Days

Receivables looks at the number of receipt grace days when determining the Number of Days Late for an open debit item. Receipt grace days extend the due dates for outstanding debit items when calculating finance charges and sending dunning letters. You specify Receipt Grace Days when defining your customer profile classes. See: Defining Customer Profile Classes. For dunning letters to include grace days, check the Use Grace Days check box in the Dunning Letter Sets window. See: Creating Dunning Letter Sets.

Assign Finance Charge Limits and Interest Rates by Currency

For each currency you define for your customer's profile class, you can determine the interest rate, maximum interest charge for each invoice, and the minimum customer and invoice balance that must be exceeded before you will calculate finance charges. These values, along with your customer's past due balance, determine the amount of finance charges. See: Defining Customer Profile Classes.

Calculate Finance Charges for Disputed Items

You can choose to include items in dispute when calculating finance charges by checking the Charge Finance on Disputed Items check box in the Print Statements window. You can mark an item 'In Dispute' in either the Transaction or the Customer Calls window. See: Placing an Item in Dispute.

Compound Finance Charges

Oracle Receivables lets you compound finance charges since the last time finance charges were calculated. Finance charges are calculated on the remaining amount due of the past due debit item and then added to any previously calculated finance charges. See: Compounding Finance Charges.

Display Finance Charges on Statements and Dunning Letters

When defining your Dunning Letter sets, choose to calculate and display finance charges on your dunning letters by checking the Finance Charges check box. See: Creating Dunning Letter Sets.

When printing your statements, choose to calculate and display finance charges by checking the Calculate Finance Charges check box. See: Printing Statements.

Exclude Specific Debit Items From Finance Charges

If you normally charge finance charges for your customers' past due debit items, but you want to exclude a specific debit item from finance charges, choose No in the Finance Charges field of the Transaction window for that item.

See Also

Preparing Receivables for Accruing and Compounding Finance Charges

Setting Up Receivables to Calculate Finance Charges

Determining the Past Due Amount

Accruing Finance Charges

Compounding Finance Charges

Are You Applying Finance Charges? Should You Be?

Assessing finance charges is a complicated process. But if you have a lot of late payments coming in, you may want to consider it.

There are many reasons why your customers send in payments past their due dates. Maybe they missed or misplaced your invoice, or they’re disputing the charges. They might not be very conscientious about bill-paying. Or they simply don’t have the money.

Sometimes they contact you about their oversight, but more often, you just see the overdue days pile up in your reports.

You could use stronger language in your customer messages. Send statements. Make phone calls if the delinquency goes on too long. Or you could start assessing finance charges to invoices that go unpaid past the due date. QuickBooks provides tools to accommodate this, but you’ll want to make absolutely sure you’re using them correctly – or you’ll risk angering customers and creating problems with your accounts receivable.

Setting the Rules

Before you can start, you’ll need to tell QuickBooks how you’d like your finance charges to work. It’s at this stage that we recommend you let us work with you. There’s nothing overly difficult about understanding finance charges in theory: you apply a percentage of the dollar amount that’s overdue to come up with a new total balance. But setting up your QuickBooks file with the finance charge rules you want to incorporate may require some assistance. If it’s done incorrectly, you will hear from your customers.

Here’s how it works. Open the Edit menu and select Preferences, then Finance Charge | Company Preferences.

Figure 1: Before you can start adding finance charges to overdue invoices, you’ll need to establish your company preferences

What Annual Interest Rate percentage do you want to tack onto late payments? This is an issue we can discuss with you. Too low, and it’s not worth your extra time and trouble. To, high, and your customers may stop patronizing your business. And do you want to set a Minimum Finance Charge? Will you allow a Grace Period? If so, how many days?

You’ll need to assign an account to the funds that come in from interest charges. This needs to be an income account. In our example, it’s Other Income.

The next decision, whether to Assess finance charges on overdue finance charges, needs consideration – and some research. This may not be an option depending on the lending laws in the jurisdiction where your business is located. So again, if you want to charge interest on unpaid and tardy finance charges themselves, let’s talk.

When do you want the finance charge “countdown” to begin? When QuickBooks identifies a transaction that has not been paid within the stated terms, do you want the added charge to be applied based on the due date or the invoice/billed date?

Note: If your business sends statements rather than invoices, leave the Mark finance charge invoices “To be printed” box at the bottom of this window unchecked.

Applying the Rules

QuickBooks does not automatically add finance charges to your customers’ invoices. You’ll need to administer these additions yourself, though QuickBooks will handle the actual calculations. Open the Customers menu and select Assess Finance Charges to open this window:

Figure 2: You’ll determine who should have finance charge invoices created in the Assess Finance Charges window.

Make very sure that the Assessment Date is correct, as it has impact on QuickBooks’ calculations. Being even a day off makes a difference. Select the customers who should have finance charges applied by clicking next to their names in the Assess column. QuickBooks will display the Overdue Balance from the original invoice, as well as the Finance Charge it has calculated.

  • If you choose not to apply finances charges to a customer because he or she has provided a good reason for the late payment, be sure the box in the Assess column is unchecked.
  • If you want to change the finance charge due for a valid reason, you can type over the amount in the last column. This would be a rare occurrence and should be exercised only after consulting with us.

Important: If there is an asterisk next to a customer’s name, there are payments or credit memos that have not yet been applied to any invoice.

When everything is correct, click the Assess Charges button at the bottom. QuickBooks will create separate invoices for finance charges for each customer who owes them.

We can’t stress enough the importance of consulting with us before you start to work with finance charges enough. Keep your company file accurate and your customers happy by getting this complex accounting element right from the start.


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