Finance charges

You can add interest or finance charges to overdue invoices. The finance charge rates are set up in Sales Ledger settings Processing tab and applied on the customer account Credit tab. You run the calculation of interest at any point during the month, using the Finance Charges option. However, only one interest calculation can be made per account, per calendar month.

Charges are calculated in the following way. The outstanding gross value of any transaction is multiplied by the finance charge rate and divided by 100 (as it's a percentage). For example, if you have an invoice with an outstanding value of £117.50 and the finance charge rate for the customer is 2%, the charge for the invoice is 117.50 x (2/100) = £2.35.

Once generated, finance charges are added to the customer's account. The finance charge is posted to the debtors control nominal account and the default finance charge nominal account that is specified in the Nominal Ledger.

You can reverse finance charges, if required.

  • A sales invoice for the charge amount is added to the customer's account.
    • The invoice has a reference of FIN CHARGE.
    • A query flag F is added to the invoice.
    • No invoice document is printed.

  • The Sales Ledger Finance Charges report is printed.

    This shows the customer account reference, name, finance charge band, percentage rate, entry reference, date, due date, days overdue, outstanding value, finance charge value per invoice and total finance charge for each customer.

  • The finance charge is posted to the Nominal Ledger. This debits the Debtors Control nominal account and credits the Finance Charge nominal account.

  • A credit note for the charge amount is added to the customer's account.
    • The credit note has a reference of FIN CH REV.
    • The credit note is automatically fully allocated to the original finance charge invoice.
  • The query F flag is removed from the finance charge invoice.
  • The finance charge credit note appears on the customer statement.

  • The Sales Ledger Finance Charges Reverse report is printed.

    This shows the customer account reference, name, finance charge band, percentage rate, entry reference, transaction date, finance charge value per credit note and total reversed finance charge for each customer.

  • The reverse finance charge transaction is posted. This debits the Finance Charge nominal account and credits the Debtors Control nominal account.

If you have specified a cost centre and department for the default sales nominal account on your customer's account, you must create a nominal account for finance charges with the same cost centre and department.

For example, a customer has a default sales account of 31100 SAL COM. The finance charge is posted to the nominal account 37110 (Finance Charges) SAL COM. If there is no finance charge nominal account with the relevant cost centre and department, the finance charge is posted to the suspense account.

To set up finance charges

  1. Open: Nominal Ledger > Utilities > Ledger Set Up > Default Nominal Accounts.

    1. Select a nominal account to use for Finance Charges.

  2. Open: Sales Ledger > Utilities > Ledger Set Up > Ledger Settings | Processing.

    If you want to add interest or finance charges to overdue unpaid invoices, you can specify the interest charge rates that you want to use here.

    When you want to charge a customer interest on their overdue invoices, you assign a Charge index code to the relevant customer accounts on the account Credit tab.

    There are 20 Charge Index codes.

    • Enter the Percentage Charge you want to use for as many Charge Indexes you want to use. Leave the remaining Percentage Charges as 0.
    • Select Charge compound interest on finance charges to add interest to finance charges already calculated on any remaining overdue debts.

    Once you have specified the interest rates that you want to use and added the required interest rates to your customer accounts, you can generate your finance charges. This allows you to add interest to any overdue invoices.

    Where interest is added, invoice transactions are added to the customer's account with the query flag set to F, and the reference as FIN CHARGE.

  3. Open: Sales Ledger > Sales Accounts > Amend Account | Credit.

    1. Select Finance Charges to add interest charges to the account.
    2. Select the percentage charge you want to apply from the drop-down list.

To apply finance charges

Open: Sales Ledger > Period End Routines > Finance Charges.

  1. Select Apply Finance Charges.

  2. Enter the Charge date to appear on invoice.

    This date is used to post the finance charge transaction.

    Note: This date should not be after the end of the current period, and should be within the range of accounting or Sales Ledger trading periods.

  3. Enter the date up that you want to include invoices up to (Include invoices with due date up to).

    Note: This date should not be after the end of the current period.

  4. Filter the list of entries displayed using the Selection criteria to show All Transactions, or transactions By date range, By customer range, or By finance charge rate.

    A list of outstanding transactions potentially requiring finance charges is displayed.

    Note: The list is also filtered by the dates you've chosen for Charge date to appear on invoice and Include invoices with due date up to.

  5. Select the transactions that you want to add finance charges to:
    • To select all the transactions, click Select all.
    • To select individual transactions, click the check box to the left of the transaction.
  6. To print a list of finance charges, without adding the charges to the customers account, click Print.

  7. To apply and post finance charges to the customer's account, click Generate.

    This also prints a list of all finance charges.

To reverse finance charges

Open: Period End Routines > Finance Charges.

  1. Select Reverse Finance Charges.

  2. Enter the Charge date to appear on invoice.

    This date is used to post the finance charge transaction.

  3. Filter the list of entries displayed using the Selection criteria to show All Transactions, or transactions By date range, By customer range, or By finance charge rate.

    A list of finance charges is displayed.

  4. Select the finance charges that you want to reverse:
    • To select all the transactions, click Select all.
    • To select individual transactions, click the check box to the left of the transaction.
  5. To print a list of finance charges to be reversed, without reversing the charge on the customer's account, click Print.

  6. To reverse and post the finance charges to the customer's account, click Generate.

    This also prints a list of the reversed finance charges.

See also

Reference

Default nominal accounts

Processing (SL settings)

Finance charges