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For detailed instruction on Finance Charge processing in Q360, see Invoice Finance Charges
Introduction
Finance charges are a tool used in accounting to manage overdue invoices. They can be applied to add interest to a balance, add service or late fees for transactions, or for balance transfer fees. This document is intended for accounting personnel who manage accounts receivable. Before implementing finance charges, it is crucial to decide on the frequency of their application (e.g., monthly) and the percentage to be charged.
Business Challenge
The primary business challenge is to effectively manage and collect on overdue customer balances. Without a systematic process for applying finance charges, businesses risk revenue loss from unpaid invoices and the administrative burden of inconsistent follow-up. A standardized approach ensures fairness and clarity for both the company and its customers.
Key Takeaways
- Establish a clear policy on the frequency and percentage of finance charges.
- Identify and exclude specific customers from the finance charge process if necessary.
- Utilize the system to automate the calculation and generation of finance charge invoices.
- Regularly review and process generated finance charge invoices.
Recommended Practice
The recommended practice is to implement a regular, systematic process for applying finance charges to overdue customer accounts. This involves setting up a standard finance charge percentage, defining what constitutes an overdue invoice (e.g., number of days past due), and establishing a minimum invoice total (threshold) for charges to apply.
Customers who should be exempt from these charges must be clearly marked in the system before the process is run. Once the parameters are set, the system can automatically identify all applicable invoices and generate new invoices for the calculated finance charges. These new invoices should then be reviewed, printed, and posted like any other standard invoice, ensuring that the revenue and accounts receivable are updated accordingly.
Manage finance charges effectively within Q360:
Permissions:
Ensure the user has the FINCHARGE – view permission to access and use the Finance Charges form from the Accounts Receivable menu.
Set Up a Master No.: Typically, M-Type Masters will be set up during the implementation process by your System Admin. The M-Type Master will be used in the Finance Charge process
- Create an M-Type Master
- Set the Default Account on this new Master to the GL Account to which you wish to post the charge
Finance Charge Form Fields:
- Company No. – Defaults to 01. Select from drop-down list. Values are based on the Company Setup (Accounting menu > Admin)
- # Days Overdue – Default is 10. This field is editable. This looks at the number of days the invoice is out compared to the Due Date selected in the Finance Charges window. Note: if you set the # of Days Overdue to a higher value, it will minimize the number of Invoices generated
- Finance Percentage – Defaults to 1.50%. This percentage is used to calculate the finance charges (percentage* Invoice total). This percentage is editable. It can be set based on the frequency that the finance charges are generated
- Master No. – Users can set up their own Master (Master – M Type, Sales Revenue points to the Finance Charges account (setup in GL Accounts) and its own unique number so it’s easier to find) This field is manual input
- Due Date – Defaults to the current date. Typically is the date the finance charges are run in Q360. Click on the Calendar icon to change
- Threshold – Defaults to zero dollars. This is the minimum dollar amount on the invoice total before Q360 will charge finance charges against. This field is editable
- Select Customer Range – this grid displays Customers – User may select one or more by highlighting. Grid automatically highlights only the top Customer in the grid by default
Frequently Asked Questions
How is the finance charge calculated?
The finance charge is calculated by multiplying the total of the overdue invoice by the Finance Percentage entered in the Finance Charges window (Finance Percentage * Invoice Total).
Can I set up a unique master for tracking finance charges?
Yes, it is recommended to set up a unique Master with a Master Type of ‘M’. The sales revenue account for this master should be the GL account designated for Finance Charges revenue. This makes it easier to find and report on these specific transactions.
What happens after I click save on the Finance Charges window?
After you click Save and confirm, Q360 creates un-posted invoices of the type ‘FINANCE’ for all customers who meet the criteria you defined. It then automatically opens the ‘Invoices to Print’ window for you to review and process them.
For detailed instruction for Finance Charge processing in Q360, see Invoice Finance Charges