Penalty Interest

Penalty Interest

1. Purpose

Penalty Interest functionality allows leasing company to calculate and charge customer penalty interest if instalments are not paid according to the loan terms. This includes:

• Configuring Penalty Interest setup
• Reviewing accrued Penalty Interest details
• Invoicing Penalty Interest

2. Penalty Interest setup

You have to setup Penalty Interest calculation if you want to apply Penalty Interests for customer contracts. Setup must be completed for every Financial Product which means you can have different setup per financial product.

2.1 Financial Product Penalty Interest calculation setup

Open Financial Products page and select financial product for which Penalty Interest setup is required to complete. You can find this page by searching for Financial Product Setup.

Figure 1 Financial products

Open selected financial product and navigate to fasttab Fees and Penalties. Penalty Interest group fields define the Penalty Interest calculation and behaviour.

Figure 2 Penalty Interest setup

Penalty Int.% Method provides two options:

• Add Penalty % on top of financing interest – sum of Penalty Interest rate and contract financing interest rate.
• Apply Penalty int. % directly – flat Penalty interest rate.

Field Standard Penalty Interest % allows to define Penalty Interest % value which is inherited for the new contracts.
Penalty Interest Base provides two options:

• Current Receivable – Interest Base amount equal to Current Receivable (total overdue amount)
• Current Receivable excl. unpaid penalties – Interest Base amount calculated by deducting unpaid Penalties from Current Receivable (total overdue amount minus posted penalty interest amount)

Field Penalty Invoicing Method allows to choose how penalty interest will be invoiced by Invoicing Run batch process:

• Invoice with the next instalment – Penalty Interest is recalculated and invoiced with the next scheduled instalment when executing Invoicing run process.
• Invoice on demand – run Penalty Invoicing manually for a certain contract any time, see Figure 10 Contract Card - Manual Invoice Penalty Interest run.
• No penalty – penalties won’t be calculated.

Minimal Penalty Interest Amount To Post For Customer field allows to define the minimal Penalty Interest charge (example shows 1 Eur).

2.2 Penalty Interest Tolerance days setup

Open Leasing Setup page to configure Penalty Int. Tolerance Days value, which allows to define number of days for which Penalty Interest will not be calculated. If the payment isn’t received during defined period, the Penalty Interest will be calculated including tolerance (grace) period.
Best practice is to set field value to 2 - 3 days to avoid insignificant overdue.
On Contract card calculated tolerance date can be overridden by filling tolerance date to field Earliest Penalty Interest Calculation Date.

Figure 3 Leasing setup

2.3 Penalty Interest rate and Grace Period modification for a specific contract

To amend standard Penalty Interest for active contract, open Contract Card page and find the field Penalty Interest % in Collections fasttab.
Earliest Penalty Interest Calculation Date overrides grace period calculated by system.
Note: User will not be able edit these fields values without Leasing Administrator permission.

Figure 4 Contract Card - Penalty Interest % and Earliest Penalty Interest Calculation Date

3. Accrued and posted Penalty Interest details.

There are multiple locations where you can find the Accrued Penalty Interest details.
Search for customer Contract card page, navigate to Balances fasttab where you will find Accrued Penalty Interest calculated for WORKDATE day. Click Accrued Penalty Interest field’s Assist-Edit button to review how your setup in Figure 2 Penalty Interest setup affected Penalty Interest calculation result.

Figure 5 Contract Card - Accrued Penalty Interest

Open Collection Worksheet and review Accrued Penalties for multiple contracts or search for a specific one.

Figure 6 Collection Worksheet

Open Contract Card page and navigate to History menu item to review accrued or posted Penalty Interest.

Figure 7 Contract Card - Penalty Calculations Details and Log

Click Penalty Calculation Details (on accrual) menu item to review accrued, but not yet invoiced Penalty Interest calculation details. After penalty interest invoicing all accrued penalty interest details are transferred to Penalty Calculation Log (invoiced penalties).
Select Penalty Calculation Log (invoiced penalties) menu item to review posted earlier Penalty Interest.

Figure 8 Penalty Interest Calculation Details

4. Penalty Interest Invoicing

To invoice accrued Penalty interest, you need to execute Invoicing Run process. Penalty Interest is re-calculated automatically and appended to regular instalment invoice in this process. In most cases the invoices are posted automatically by this process as well.
Note: You can setup and activate Job Queue item for Invoicing run if you do not want to run invoicing manually.

9 Invoicing Run

You can also invoice Penalty Interest manually by navigating to Contract Card and selecting Invoice Penalty Interest action.

Figure 10 Contract Card - Manual Invoice Penalty Interest run

After penalty interest posting navigate to contract’s Customer Ledger Entries where all previously posted penalties can be found.

Figure 11 Customer Ledger Entries

There is a possible scenario when all invoices for the contract are issued, but full payment for the contract is not received and Penalty Interest is still being calculated. To issue additional Invoice for accrued Penalty Interest run Invoicing run process, check flag Penalty Interest Posting For Completely Invoiced Contracts and start the invoicing process.

It is recommended to run this process at the end of every month because automated invoicing process Is not applied for the scenario mentioned above.

Figure 12 Invoicing Run - Penalty Interest Posting For Completely Invoiced Contracts