Late Charges in Oracle Receivables

Late Charges

Calculating Late Charges:

Calculate late charges against past due debit items for each customer, account, or site. Late charges are calculated according to the organization's late charge policy.

For example, set up late charge policy to assess late charges using different calculation methods and also vary the charge based on the number of days that a payment is overdue; for example, assess increasingly higher charges as a payment becomes more overdue. Even choose to assess a penalty fee in addition to any calculated late charges.

Once late charge policy (one policy per organization) is defined, indicate for which customers late charges are applicable. Late charges on a set of customers using a customer profile class will be applicable. Exclude one or more customers, or one or more transactions, from late charge calculations.

Use the Generate Late Charges program to actually generate the charges. Run the program in draft mode to preview late charges and make corrections, if required.

Receivables determine how to account for late charges. Choose how to present late charges to the customers: as an adjustment against the original transaction; as an interest invoice; or as a debit memo.

Receivables calculate late charges independently of dunning and statements. To ensure that late charges appear on Receivables statements, as well as on dunning letters that Oracle Advanced Collections prints, it is mandatory to run the Generate Late Charges program before creating statements or dunning letters.

Setting Up Late Charges:

Assess late charges against past due debit items for each customer, account, or site.

The calculation of late charges is determined by Organization’s late charge policy. Set up Organization’s policy to control various decisions, such as whether Organization assesses late charges, and how those late charges are calculated.

To set up organization to assess late charges, complete the following steps:

1. Define Organizational Late Charge Policy.
2. Set Up Late Charge Documents and Accounting.
3. Define Interest Tiers and Charge Schedules.
4. Define Late Charge Policies.
5. Review Late Charge Policies at the Customer or Transaction Levels.

Step1.  Define Organizational Late Charge Policy.

Select the Assess Late Charges box in the System Options window. Receivable reviews this option first, before reviewing the various aspects of late charge policy.

In the System Options window, provide information to process the late charge documents that organization sends to customers, as well as possible interest calculation alternatives for balance forward billing.

Step2. Set Up Late Charge Documents and Accounting.

Record late charges as one of three document types:

       Adjustments

       Debit Memos

       Interest Invoices

Follow the setup steps below to indicate how Receivables should record late charges and present them to customers. Complete this step for each organization in which organization assesses late charges.

Recording Late Charges as Adjustments:

Record late charges as adjustments, then Receivables combine all interest charges relating to an overdue transaction, and create a single late charge adjustment against that transaction.

To use this document type, complete the following steps:

1. Define a late charge receivable activity and specify the activity's GL account.
2. Optionally create a separate receivables activity for penalties. Receivable creates penalties as a separate adjustment against the overdue transaction.
3. Select these activities during system options setup.

Recording Late Charges as Debit Memos or Interest Invoices:

If Organization record late charges as debit memos, then Receivables create one debit memo per overdue transaction.

If Organization record late charges as interest invoices, then Receivables creates a single interest invoice per customer site and currency. The interest invoice consolidates and itemizes charges for a period, and includes details about charges for each overdue transaction.

To use either document type, complete these steps:

1.      Define a late charge batch source with a type of Imported.

Receivable creates a debit memo or interest invoice batch using the Invoice API.

2.      For debit memos, define a transaction type with a class of Debit Memo.

For interest invoices, define a transaction type with a class of Invoice.

Specify the Receivable and Revenue accounts. Receivable uses these accounts instead of AutoAccounting when generating late charges.

Suggestion: Use a name and description to clearly indicate that this transaction type is used only for late charges.

3.    Select the interest invoice transaction type or debit memo charge transaction type (depending on which document that organization want to use), and late charge batch source during system options setup.

Note: Receivables treats interest invoices and debit memos as regular transactions, so tax may be calculated.

Step3. Define Interest Tiers and Charge Schedules.

If required, Customize late charges for both interest and penalties by creating interest tiers and tying those tiers to a charge schedule:

o   Use the Aging Buckets and Interest Tiers window to define a set of interest tiers based on ranges of late days.

• Assign amounts or percentages to interest tiers in the Charge Schedules window.

Step4. Define Late Charge Policies.

Organization can control how late charges are calculated by defining late charge policies in the Customer Profile Classes window. If necessary, define a different late charge policy per customer profile class.

Assign a customer profile class to a customer, the late charge policy is defaulted to the customer account, but those values can be changed. Also define a late charge policy at the site level if required.

To define a late charge policy, navigate to the Customer Profile Classes window, query or enter a new customer profile class, and set the options described below. Use both the Late Charge Profile and Profile Class Amounts tab to define a late charge policy:

· Defining a Late Charge Profile 

· Defining Profile Class Amounts

Defining a Late Charge Profile:

1.      On the Late Charge Profile tab, enable the assessment of late charges by selecting the Enable Late Charges box.

To assess late charges, you must select both the Assess Late Charges system option and this Enable Late Charges box.

1. Decide how Receivables should calculate late charges. Select one of three methods:
1. Average Daily Balance: Calculate late charges based on the average daily balance of overdue invoices. Use this calculation method if you are sending balance forward bills to your customers.
2. Late Payments Only: Calculate late charges based on the number of days between the payment due date and the actual payment date. Receivable uses the paid amount as the overdue invoice amount when calculating the late charge.
3. Overdue Transactions Only: Calculate late charges for transactions, based on the number of days a payment is late when you submit the Generate Late Charges program.
4. Overdue Transactions and Late Payments: Calculate late charges on both overdue transactions and late payments. This option levies the largest late charge amount on a customer.

For example, organization calculates late charges on the 15th and 30th of each month. Customer has an overdue invoice of Rs.1000/- that falls due on November 16:

1. On November 30, you run the Generate Late Charges program.

Receivable calculates late charges for this overdue invoice.

2. On December 10, your customer pays the invoice.
3. On December 15, you run the Generate Late Charges program again.

Receivable assesses further charges for the additional 10 days that the payment was overdue.

2. Decide how Receivables should handle credit items and disputed transactions when calculating late charges:

• Select the Credit Items box to have credit items, such as unapplied or on-account receipts, or on-account credits, reduce the total overdue amount. Selecting this option reduces the late charge.
• Select the Disputed Transactions box to include disputed transactions in the total overdue amount. Selecting this option increases the late charge.

3. Indicate how Organization would like to present late charges to customers assigned with this customer profile class. Organization can record late charges as one of three document types:

• Adjustment: Receivable calculates late charges as an adjustment against the overdue transaction.

If Organization levy penalty charges, then Receivables creates two adjustments.

If Organization selected the Credit Items box in the previous step, then credit items reduce the outstanding overdue amount during late charge calculations.

• Debit Memo: Receivable creates one debit memo per overdue transaction.

If Organization levy penalty charges, then Receivables includes a separate line for penalty charges.

If Organization selected the Credit Items box in the previous step, then credit items reduce the outstanding overdue amount during late charge calculations.

• Interest Invoice: Receivable creates a single interest invoice per customer site and currency. The interest invoice consolidates and itemizes charges for a period, and includes details about charges for each overdue transaction.

If Organization levy penalty charges, then Receivables includes a separate line for penalty charges.

If Organization selected the Credit Items box in the previous step, then Receivables calculates negative charges on existing credit items, and includes those negative charges as lines on the interest invoice.

4. If you record late charges as debit memos or interest invoices, then select a payment term to indicate the debit memo or interest invoice's due date.

Note: If balance forward billing is enabled, then this value defaults from the payment term on the balance forward bill.

5. Select message text to print comments on the debit memo or interest invoice.
6. Select the interest calculation formula:

• Flat Rate: Use a flat rate to calculate the late charge amount. Receivables ignore the number of days that a payment is overdue. The formula is:

Amount Overdue * (Interest Rate/100)

• Simple: Calculate late charges on overdue transactions only. The formula is:

Amount Overdue * (Interest Rate/100) * (Number of Days Late/Number of Days in Period)

• Compound: Calculate late charges on the sum of overdue transactions and prior late charges. The formula is:

(Amount Overdue + Prior Late Charges) * (Interest Rate/100) * (Number of Days Late/Number of Days in Period)

7. Select the interest calculation period:

• Daily: Receivables determine the number of days that a payment is overdue to the exact day. For example, if a transaction is 45 days past due, then Receivables calculates late charges based on 45 days.
• Monthly: Receivables determine the number of days that a payment is overdue by rounding up to the nearest month. For example, if a transaction is 45 days past due, then Receivables calculates late charges based on 60 days.

8. Enter the number of days in the interest period. Receivables use this number when calculating late charges.

Typical values are either 30 or 365 (to represent either a monthly or an annual interest period), but you can enter any value.

9. Enter the number of receipt grace days after a transaction's due date before late charges will be calculated.

However, after the grace days expire, Receivables calculates the number of days overdue using the original due date.

10. Indicate if you want transactions that were assessed late charges to be put on hold from future late charge calculations:

• Yes: After Receivables assesses late charges on a transaction, that transaction is exempt from future late charge calculations.
• No: An overdue transaction will be subject to late charges as long as the transaction remains unpaid.

This option applies only when charges are calculated using the Overdue Transactions Only or Overdue Transactions and Late Payments calculation method.

11. Optionally enter a charge beginning date, which indicates when to start assessing late charges on customers assigned to this customer profile class.
12. Use the Use Multiple Interest Rates box to indicate which interest rates Receivables will use when calculating late charges for interest invoices. Use this check box if the late charge period spans multiple periods as defined in the charge schedule:
1. Select this box to calculate late charges by first multiplying the number of days each rate was effective by the effective interest rate, and then adding all results.
2. To use only the interest rate that was effective on the invoice due date, leave this box unchecked.

Define interest tiers and related charge schedules, so that Receivables can use different interest rates depending on how late an overdue transaction is.

Defining Profile Class Amounts:

Define profile class amounts per currency.

Attention: If Organization do not assign an interest rate to a currency, Receivables does not calculate late charges for past due items in that currency.

1. On the Profile Class Amounts tab, use the Minimum Customer Balance and Minimum Invoice Balance fields to indicate whether late charges (not penalties) should be assessed against a customer account or invoice. Receivables assess late charges if the minimum customer and invoice balances are exceeded.

Define these values as either an amount or percentage of the total overdue amount.

2. Use the Minimum Charge Per Invoice and Maximum Charge Per Invoice fields to establish limits on whether Receivables will record late charges for an invoice. Receivables assess late charges provided that the total late charge amount falls within this range.

These values are per calculation period, and ignore any penalties that may already be levied on a customer.

3. Use the Interest Charge Type, Value, and Charge Schedule fields to indicate how Receivables calculates late charges on overdue transactions. For the charge type, select:

• Fixed Amount: Receivables use the value you specify in the Value field during late charge calculations. This amount does not change as the overdue transaction ages.
• Fixed Rate: Receivables use the interest rate you specify in the Value field during late charge calculations. This rate does not change as the overdue transaction ages.
• Charge Schedule Per Invoice: Receivables uses a charge (amount or percentage) for each invoice based on the schedule specified in the Charge Schedule field. The application applies the charge assigned to each tier to all the invoices in that tier to calculate the total charge amount. For example, if there are two invoices, INVOICE01 and INVOICE02, in a tier and the charge specified for the tier in the charge schedule is an amount of Rs.10/-, then Receivables calculates the total charge amount as Rs.20/-.
• Charge Schedule Per Tier: Receivables uses a fixed charge (amount) for all the invoices in a tier based on the schedule you specify in the Charge Schedule field. The fixed charge is prorated between the invoices based on the amount due.

4. Use the Penalty Charge Type, Value, and Charge Schedule fields to indicate how Receivables calculates penalties. Penalties are optional and are calculated separately from late charges. For the charge type, select:

• Fixed Amount: Receivables apply the flat fee that you specify in the Value field, in addition to late charges.
• Fixed Rate: Receivables calculate the penalty as a fixed percentage of late charges.
• Charge Schedule Per Invoice: Receivables uses a penalty charge (amount or percentage) based on the schedule you specify in the Charge Schedule field.
• Charge Schedule Per Tier: Receivables use a fixed penalty charge (amount) for all the invoices in a tier based on the schedule you specify in the Charge Schedule field. The fixed charge is prorated between the invoices based on the amount due. For example, if there are two invoices INVOICE01 and INVOICE02 each with an amount due of Rs.100/- in a tier, and the fixed charge specified for the tier in the charge schedule is an amount of Rs.10/-, then Receivables calculates the total charge amount as Rs.10/. The application then prorates the total charge between the two invoices as Rs.5/- each.

Step5. Review Late Charge Policies at the Customer or Transaction Levels:

Customer Exceptions: Use the Late Charges tab at the customer account or site levels to review late charge setup details defaulted from the customer profile class. You can change any setup option at either the account or site level..

Optionally set the AR: Use Statement, Dunning, and Late Charges Site Profiles profile option to control which account site's late charge setup is used by the Generate Late Charges program.

Transaction Exceptions: If you normally charge late charges for your customers' past due debit items, but you want to exclude a specific debit item from late charge calculations, select the Exempt from Late Charges box in the Transactions window for that item.

Or, exclude a whole class of transactions by selecting the Exclude from Late Charges Calculation box on the transaction type.