Penalty and Interest (P&I) is the commonly used term to describe a wide range of penalty, interest and fee liabilities. These charges are usually imposed by legislation.
A penalty is a liability imposed for noncompliance with tax law. Revenue authorities can file penalties against taxpayers for "failure to file," "failure to pay," "substantial understatement," and so on
Interest compensates the government for cost of money over time
Fees are imposed to reimburse revenue authorities for their cost of doing business. For example, revenue authorities may incur fees for sending certified mail or for handling defective checks and will pass those fees onto the taxpayers
P&I may be triggered in any of the following ways:
Event driven, for example, reversing a payment due to non-sufficient funds will impose a fee. These types of transactions are simply one-off adjustments that are created by an appropriate algorithm when the event occurs
User triggered, for example, auditors may impose an inadequate record-keeping penalty their discretion. The amount may be predefined or determined by the auditor. These types of transactions are created manually or may be created as part of a business process defined by your implementation.
Ongoing, system-generated charges based on predefined configuration rules. The remainder of this chapter focuses on these types of charges.
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