Finance methods

Create a finance method

1. In the Navigation pane, highlight the Accounts Receivable > Setup > Finance Methods folder.
2. Click . The New Finance Method window opens.

   

3. Enter a unique Code for the finance method.
4. Enter a Description of the finance method.
5. In the Grace Period field, enter the number of days an invoice must be past due before finance charges are assessed. Leave this field blank or enter zero if finance charges should be assessed from the day the invoice is due.
6. From the Aging Date Basis drop-down list, select the type of date to base aging on for the purpose of assessing finance charges. Your options are:
   • Due Date. Use the due date calculated from the payment terms to determine aging dates.
   • Invoice Date
7. From the Basis Method drop-down list, select the method to use to calculate the balances on which finance charges are assessed. Your options are:
   • Average Daily Balance. Calculate the balance at the end of each day of the assessment period (including the grace period) for all past due invoices which use this finance method. Divide the sum of these balances by the number of days in the assessment period.

   • Ending Balance. Calculate the balance at the end of the assessment period (including the grace period) for all past due invoices which use this finance method.

     Note

     The assessment period is determined when you run the Assess Finance Charges wizard.

8. In the Minimum Basis field, enter the minimum past due balance on which to assess finance charges. If the calculated total balance of a customer's past due invoices which use this finance method is less than this amount, no finance charges are assessed.

9. To include outstanding credits that reference this finance method in balance calculations, mark the Include Credits checkbox.

   Note

   It's possible that some credits for this finance method should be included and others should be excluded from balance calculations. Since a credit must reference a finance method to be included in its calculations, you can remove or change the references to finance methods on the credits to exclude them.

10. To assess finance charges on outstanding finance charge invoices, mark the Compound Charges checkbox. Only finance charges that reference this finance method are included in calculations.

    Important!

    Laws may govern how finance charges, interest, and late fees are compounded. Check with the appropriate tax jurisdictions to verify that you are in compliance with all regulations.

11. In the Assessment Rates section from the Rate Type drop-down list, select the type of rate to use to assess finance charges. Your options are:

    • Daily. The daily rate is multiplied times the number of days in the assessment period. If you select this option, the Daily Rate and Annual Rate fields are enabled. These fields work in conjunction with one another: If you enter a daily rate, ActivityHD calculates the annual rate and vice versa.

      Note

      The daily rate is the annual rate divided by 365 days per year. In the Assess Finance Charges wizard, the rate for the current assessment period is determined by multiplying the daily rate times the number of days in the period. This yields a more precise assessment rate than the fixed period rate when assessment period lengths are variable.

      Example

      If you enter an annual rate of 18.0000%, ActivityHD calculates a daily rate of 0.0493150684931507%. If you process finance charges for a 34-day assessment period, the rate would be:

      34 * 0.0493150684931507% = 1.67671232876712%

    • Period. The same assessment rate is applied every period. If you select this option, the Period Rate, Periods Per Year, and Annual Rate fields are enabled. First, enter the number of periods in a year. At this point, the Period Rate and Annual Rate fields work in conjunction with one another: If you enter a period rate, ActivityHD calculates the annual rate and vice versa.
    • None. An assessment rate is not used; instead, a flat amount is charged each assessment period.

12. If you selected "Daily" or "Period" in the Rate Type field, the Minimum Charge field is available. Enter the minimum finance charge to assess. If the calculated charge, not including any flat amount, is less than the minimum, the minimum charge is assessed.

    Example

    Past Due Balance: $1,000.00

    Period Rate: 1.500%

    Minimum Charge: $20.00

    Flat Amount: $10.00

    Calculated Charge = $1,000.00 * 1.5% = $15.00

    Adjusted Calculated Charge = $20.00 (since Minimum Charge is greater than Calculated Charge)

    Total Finance Charge = $20.00 + 10.00 = $30.00 (Adjusted Calculated Charge + Flat Amount)

13. In the Flat Amount field, enter the flat amount to assess for finance charges or the flat amount to assess in addition to a calculated amount. If a flat amount does not apply, leave this field blank.

    Note

    You can specify both a flat amount and a rate on a finance method. This results in a finance charge assessment which is the total of the flat amount and the calculated amount based on the rate.

14. In the Invoice section in the Description field, enter the literal text and/or keywords to define the description to use on finance charge invoices.

    Example

    Suppose you want the description to contain the month and year that finance charges were assessed: "Finance Charges May 2014". To achieve this, you could enter the following:

    Finance Charges <Period End Month Name> <Period End Year>

15. In the Type field, select the default invoice type to use for finance charge invoices. The invoice type must have a classification of "Finance Charge". The Print Invoice flag and GL Batch field default based on the options from the selected invoice type. The invoice type also determines the invoice numbering scheme.
16. In the Salesperson field, select the salesperson to assign by default to finance charge invoices. If finance charge invoices should not have a salesperson, leave this field blank.
17. In the Terms field, select the default payment terms to assign on finance charge invoices. If finance charges are due on their invoice date and should not have payment terms, leave this field blank.
18. In the ARCode field, select the default ARCode to assign on finance charge invoices. The Item Tax Category and Detail Description fields default from the selected ARCode. The sales account masks from the ARCode, class, customer, and attribute items determine the sales account on the finance charge invoice.
19. The Item Tax Category field defaults from the ARCode you selected. If you need to change the default item tax category to assign on finance charge invoices, select the item tax category. The item tax category together with the customer tax category determine whether the finance charge invoice is taxable.
20. The Detail Description field defaults from the ARCode you selected. If you need to change the default line item detail description for finance charge invoices, enter a new description. You can press F2 to open a popup where you can enter a lengthy description.
21. If you want to print finance charge invoices, ensure the Print Invoice checkbox is marked. The state (marked or unmarked) of this checkbox defaults from the invoice type you selected.
22. In the Attributes section, enter the attribute item values to apply for finance charge invoices.
23. The AR account on a finance charge invoice can be built from the AR account masks on the invoice type, customer, customer class, and attribute items. If this is what you want to do, leave the AR Account field in the General Ledger section blank. If, instead, you want to specify a particular AR account for finance charge invoices which use this finance method, enter the account number in the field.
24. The sales account on a finance charge invoice can be built from the sales account masks on the customer, customer class, ARCode, and attribute items. If this is what you want to do, leave the Sales Account field blank. If, instead, you want to specify a particular sales account for finance charge invoices which use this finance method, enter the account number in the field.
25. From the GL Date Option drop-down list, select the date to use as the GL date for finance charge invoices. Your options are:
    • Invoice Date
    • Period End Date. Use the end date of the period that contains the invoice date (based on the calendar from the AR account on the invoice).
26. The GL Batch field defaults from the invoice type you selected. If needed, you can enter a different name for the batch to process finance charge invoices with.
27. Save the new finance method.