Setting Up Receivables to Calculate Finance Charges
Receivables displays finance charges on your statements and dunning letters to inform your customers of additional charges incurred for past due debit items. You can specify different interest rates and finance charge limits for each currency when you define your customer's profile classes. Receivables also lets you determine whether to accrue finance charges or include disputed items when calculating finance charges.
Receivables uses the following formula to calculate finance charges:
| Finance = Charges
| Interest Rate
Days in Period
| * Number of
Days Late
| * Remaining
Amount
|
Receivables performs the following when determining which debit items should be assessed finance charges and the total past due amount:
- Sums up all of the unapplied and on-account amounts of the customer's receipts, as well as the unapplied amount of their credit memos which have receipt dates and transaction dates that are before the current date.
- Selects a debit item for finance charges if it is open and past due, and the number of days that it is late is greater than the number of Receipt Grace Days specified in the credit profile of the customer or customer location associated with the debit item.
- Matches the total credit amount to the debit items, starting with the oldest debit item, until the entire credit amount is used. If there are still open, past due debit items remaining, Receivables calculates finance charges for these remaining items. If there are no open, past due debit items remaining, or a credit balance exists, Receivables does not calculate finance charges.
Prerequisites
To set up Receivables to calculate finance charges:
1. Choose to calculate finance charges. To calculate finance charges for customers assigned to a profile class, check the Charge Interest check box and enter an amount of Receipt Grace Days in the Customer Profile Classes window. See: Defining Customer Profile Classes.
2. Decide whether to compound interest. To compound interest for customers assigned to a specific profile class, check the Compound Interest check box and enter the number of Days in Period in the Customer Profile Classes window. See: Defining Customer Profile Classes.
3. Assign an interest rate to each currency defined in your system. Assign an interest rate for each currency and enter a minimum customer balance and a minimum invoice balance for finance charges. If you do not assign an interest rate to a currency, Receivables will not calculate finance charges for past due items in that currency. See: Defining Customer Profile Classes.
4. Decide whether to accrue finance charges. To accrue interest, check the Accrue Interest check box in the System Options window. Receivables will update and increase the remaining amount due of each debit item assessed finance charges by the amount of the newly calculated finance charges. See: Defining Receivables System Options.
5. Decide whether to exclude specific items from finance charges. You can exclude a debit item from finance charges by setting the Finance Charges field to No in the Transactions window. You can exclude an item from finance charges when entering a new or updating an existing transaction. See: Entering Transactions.
Calculating Finance Charges When Printing Dunning Letters
- When defining your Dunning Letter sets, choose whether to use grace days, calculate finance charges, and calculate finance charges on disputed items. Define these parameters in the Dunning Letter Sets window by checking or unchecking the appropriate check boxes. See: Creating Dunning Letter Sets.
Note: The Include Unapplied Receipts check box in the Dunning Letter Sets window only affects whether these receipts are actually printed on your dunning letters. Unapplied and on-account receipts are always included before finance charges are calculated.
Calculating Finance Charges When Printing Statements
- To calculate finance charges for disputed items, check the Charge Finance on Disputed Items check box. You can mark an item In Dispute in either the Transaction or the Customer Calls window. See: Placing an Item In Dispute.
See Also
Printing Statements
Printing Dunning Letters
Calculating Finance Charges
Define receivables activity of type 'Finance Charges'