Finance Charges

You can configure finance charges so you can collect interest on late receivables.

Configure Finance Charge Rates

Finance charges are calculated on a daily rate. The daily rate is typically equal to the annual rate divided by 360.

  1. Click the Finance Charge Rates link from the Main Menu. The Finance Charge Rates screen opens.
  2. Click the Add button. The Add Finance Charge Rate screen opens.
  3. Enter the necessary information:
    • Description - Name for the finance charge.
    • Annual Rate - Annual rate for the finance charge as a percentage. The annual rate is used for reporting.
    • Daily Rate - Daily rate for the finance charge as a percentage. The daily rate is used in calculations.
    • Code - Unique alphanumeric code used by the system.
  4. Click OK.

Configure the Receivable Transaction Type

  1. Click the Receivable Transaction Types link from the Main Menu. The Receivable Transaction Types screen opens.
  2. Click the Add button. The Add Receivable Transaction Types screen opens.
  3. Enter the necessary information. Some fields become available based on selections made in other fields.
    • Description - Name of the transaction type.
    • Type - Select Finance Charge.
    • Source - Where the transaction type is available.
    • Currency - Currency for the transaction type.
    • Group - Group for the transaction. 
    • GL Transfer - If checked, the transaction type automatically transfers to the general ledger. 
  4. Expand the Additional Information section.
  5. Enter the necessary information:
    • Source Default - If checked, the transaction type is the default for the source selected in the Source drop-down.
    • Finance Charges - If checked, the transaction type is eligible for finance charges. 
  6. Select the GL Distribution tab. This is where you configure the debit and credit GL accounts for any GL distribution for the transaction type.
  7. Click the Insert Row link. A new row inserts into the tab.
  8. Enter the following information:
    • GL Account Name – GL account for the transaction type.
    • Type - Select if it is the credit or debit account.
  9. Right-click on the newly added row.
  10. Select Insert Row. A new row inserts into the tab.
  11. Select the GL Account Name and Type for the credit/debit GL account. Typically the debit is to Accounts Receivable and the credit is to the Credit Interest Income account.
  12. Repeat steps 12 - 14 for any additional GL distribution lines for the transaction type.
  13. Click OK.

Configure Finance Charges for Accounts

The finance charge used for an invoice is based on the finance charge information assigned to the bill-to account for the invoice. You can add, edit and/or view this information on the A/R Demographics screen for the account:

  1. Click the Accounts - Receivable link from the Main Menu. The Accounts - Receivable screen opens.
  2. Select the account you want to view the Receivable Demographics information.
  3. Right-click and select View -> A/R Demographics. The A/R Demographics screen opens.
  4. Check the Charge Interest check box.
  5. Select the finance charge rate from the Finance Charge drop-down.
  6. Enter the number of into the Grace Days field. The Grace Days are the number of days to add to the due date of an invoice after which the invoice becomes delinquent and finance charges are calculated for the invoice. If no number is entered, then a value of 0 is used.
  7. Click OK.

You can configure default values for both the Charge Interest check box and the finance charge rate for when you create new account. To set default values:

  1. Click the Accounts Receivable Configuration link from the Main Menu. The Accounts Receivable Configuration screen opens.
  2. Check the Charge Interest check box to default the Charge Interest check box on the A/R Demographics screen for new accounts to checked.
  3. Select the default finance charge from the Finance Charge drop-down.
  4. Enter the default number of days into the Grace Days field.  
  5. Click OK.

Add Finance Charges to Invoices

  1. Click the Finance Charges link from the Main Menu. The Finance Charges screen opens.
  2. Show the Calculate column. Verify it is set to Yes for the invoices you want to calculate. This is what allows you to add the finance charges. If it is set to No:
    • Select the invoice(s).
    • Right-click and select Tools -> Toggle Calculation. The column updates to Yes for the selected invoice(s).
    • Click the Save button.
  3. Select the invoices you want to charge the finance charges.
  4. Right-click and select Tools. You can select one of two options:
    • Calculate Posted - This creates GL transactions. Proceed to step 6.
    • Calculate Unposted - The does not create GL transactions. Proceed to step 8.
  5. If you select Calculate Posted, you receive a message confirming you want to calculate and post the finance charges. Click Yes. The Calculate Posted screen opens.
  6. Enter the Transaction Date.
  7. Enter the Base Date. The Base Date is used to calculate the finance charges.
  8. Click OK. The Calculate Posted/Unposted Summary Results screen displays when the process is complete.

You always use either Calculate Posted or Calculate Unposted. You do not have some finance charges using Posted and some using Unposted. You need to make an accounting decision on which one to use (Posted or Unposted) and then proceed to always use that option. Use access management to hide the one you do not use.

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Comments

5 comments

Date Votes
  • Linda Hilko

    Our finance charge for late payment is 1.25% per month. How does this translate to the annual or daily rate option in USI.

    0 upvotes

  • Patrick Tenny

    1.25 x 12 = 15.0000 Annual

    15 / 365 = .0411 Daily

    Finance Charges uses Daily Rate to calculate Late Fee

    0 upvotes

  • Linda Hilko

    Thank you Pat.

    0 upvotes

  • Megan Eve

    How does this get added to current invoices? 

    0 upvotes

  • Maggie U.

    Hi Megan,

    Go to the Finance Charges screen from the Main Menu. You'll want to show the Calculate column and make sure that is set to Yes for the invoices you want to calculate. This is what allows you to add the finance charges. If it is set to no, you can select the invoice(s), right-click and select Tools -> Toggle Calculation.

    After you've done that, select the invoices you want to charge the finance charges and right-click and select Tools. Then you'll select one of two options:

    • Calculate Posted - This creates GL transactions
    • Calculate Unposted - The does not create GL transactions

    You'll always use one or the other of these - meaning you won't have some using Posted and some using Unposted. You'll need to make an accounting decision on which one to use and then proceed to always use that one (use access management to hide the one you don't use).

    Once that process runs, the finance charges are added to the invoice.

    I'm also going to add this information to the article. Let us know if you have any other questions!

    Thanks,

    Maggie

    0 upvotes

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