Generate finance charges

Practice Admin Partners IT Mgr Credit Controllers

Interest can be applied to a client's outstanding A/R balance. The finance charge is calculated from the client’s credit terms as set on the A/R Collection page within the client details.  A checkbox on the client record allows you to control which clients this facility is used for. The process for generating and approving finance charges is similar to that of Statements.

  • finance charges are applied to any outstanding A/R amounts up to and including the finance charge Date and is also based upon the client’s credit terms as set up on the A/R Collection page.

Generating finance charges

  1. Go to the Data Maintenance section of the Admin menu.

  2. As with statements a minimum balance and an effective date can be applied before finance charges are generated. The generation routine allows the following criteria to be used in the process:

    • finance charge Date: The cut off date for transactions to be included. Transactions dated before and including this date will be taken into account for finance charges to be applied to

    • finance charge Rate: The finance charge rate to be applied to the outstanding amount

    • Minimum Amount: Set the minimum amount if required. This is the minimum amount of finance charge to be generated against the outstanding A/R balance. Clients with A/R balances that will generate an amount of finance charge below the minimum will be ignored in the generation procedure.

  3. Click Generate Interest to generate the finance charge ready for review.

The A/R amount that the finance charge is calculated on is based on the amount that is outside of the client’s credit terms as at the finance charge Date less any outstanding credits.

The calculation that is used is:

(Outstanding A/R amount over credit terms – outstanding credits) * finance charge Rate * (Days in accounting period/ days in accounting year)

finance charges are not charged on finance charge items.

Create and post finance charges

finance charges should be generated, reviewed and posted from this page on a monthly basis.

  1. Enter the following information:

    1. Charge Date: The cut off date for transactions to be included. Transactions dated before and including this date will be taken into account for finance charges to be applied to.

    2. Charge Rate: The rate to be applied to the outstanding amount.

    3. Minimum Amount: Set the minimum amount if required. This is the minimum A/R balance to which the charges should be applied.

  2. Once the criteria has been selected, click Generate Interest/Finance to generate the finance charges ready for review.

The A/R amount that the finance charge is calculated on is based on the amount that is outside of the client’s credit terms as at the Charge Date less any outstanding credits.

The calculation that is used is:

(Outstanding A/R amount over credit terms – outstanding credits) * Charge Rate
* (Days in accounting period/ days in accounting year)

finance charge items are excluded from the calculation.

Example 1

  • Client X has credit terms of 30 days.

  • A/R Amount = £1000 at 15th July 2020

  • finance charge generated on 30th July 2020

  • No finance charge generated as A/R amount is within the credit terms.

Example 2

  • Client Y has credit terms of 30 days.

  • A/R Amount = £1000 at 29th July 2020

  • finance charge generated on 30th August 2020

  • finance charge generated = £1000 * 10% * (30/365)

Example 3

  • Client Z has credit terms of 30 days.

  • A/R Amount = £1500 made up from £1000 at 29th July 2020 and £500 at 15th August 2020.

  • finance charge generated on 30th August 2015.

  • finance charge generated = £1000 *10%*(30/365)