Setting up and generating penalty interest invoicing (finance charges) with an administrative fee

Use these steps to set up and generate financial charges, or interest on overdue debts, for your customers. You can include an administrative fee.

  1. In the Accounts Receivable Parameters form, specify this information:
    Annual Rate
    Specify the annual finance percentage your company charges. For example, if the company charges 1.5% finance charge per month, specify 18.00. (The actual calculation is made based on days.) It the company charges 0.1% per day, specify 36.5.
    Minimum Charge
    Specify the domestic currency amount of the minimum finance charge that is applicable during the finance charge calculation.
    Charge Minimum
    Select the check box to apply the minimum charge amount during finance charge calculations. Clear the check box to have no minimum charge.

    For example, if the Minimum Charge is set at 1, you can determine in the Charge Minimum field whether to apply a finance charge that is less than that amount.

    Compound Charges
    Select this check box to apply additional finance charges on overdue finance charge amounts. Clear this check box to instruct the system to ignore all open item finance charges during the finance charge calculations.
  2. On the Customers form, specify this information for each customer:
    Finance Charge
    In the Credit area, select this box if finance charges apply to this customer. Finance charges are calculated on the past due amount.
    Last Finance Charge Date
    In the Payment History area, this field shows the last date when finance charges were calculated on the past due balance of this customer. This date is automatically updated during finance charge posting. The date can also be entered manually.
  3. Use the A/R Finance Charge Generation form to generate finance charges for the specified range of customers.
    See the help topic on Calculating A/R Finance Charges for details about the calculation.
  4. Use the Finance Charges form to review and modify generated charges or manually create new finance charges.
  5. On the Finance Charge Posting form, specify the range of customers for which finance charges should be posted. Print and verify the charges before commiting the charges for posting to the AR journal.
  6. View the posted finance charges on the A/R Posted Transactions Detail form. Specify Finance Charge as the Type and -1 as the invoice Number.
    If posting is successful, this information is updated for the applicable customers:
    • The customer's posted balance is increased by the amount of the finance charge.
    • The customer's last finance charge date is set to the finance charge date.

    Entries are created in the A/R Distribution journal.

  7. To set up an administration fee in the Finance Charges form, specify this information:
    • Customer
    • Finance Charge Date
    • Finance Charge - specify the administrative fee amount
    • Description - specify Administrative Fee
    • Accounts - Use the default accounts, or specify different accounts, as needed.

    Post the finance charge as described above. On the A/R Posted Transactions form the posted fee is shown as a finance charge with the description of Administrative Fee.

    Another way to charge additional fees is to use the Dunning process, setting up dunning groups and dunning schedules. Dunning fees are then calculated based on the parameters. Those fees are accumulated with the finance charges and are shown in the total amount (finance charges + dunning fees) on the Finance Charges form.

    VAT is not charged on either the administrative or dunning fees. If VAT should be charged, you could create an A/R Invoice (manual invoice) with the value of the administrative fee.

  8. If you want to write off or offset the financial charges, follow these steps:
    1. In the A/R Posted Transactions Detail form, find the finance charge that you want to offset.
    2. In the Apply to Invoice field, select or specify the invoice that this finance charge applies to, and save your changes. If the invoice is no longer available or does not exist, you must create a "zero" invoice (manual invoice).
    3. On the Finance Charges form, create a negative finance charge for the customer. (Specify a negative amount.)
    4. On the Finance Charge Posting form, post the negative finance charge.
      Note: If you have open payments from the customer, they can also be reapplied to open finance charges.
    5. In the A/R Posted Transactions Detail form, find the negative finance charge.
    6. In the Apply to Invoice field, again select or specify the invoice, and save your changes.
    7. Find the invoice number that you linked to the finance charges and clear the Active field. Save your changes.
    8. Run the Accounts Receivable Aging Report, and the finance charges will drop off.
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