# Finance charges - Additional information and examples

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When you enable the Accounts Receivable features for a client in Accounting CS, you can define and assess the client's customers finance charges for past-due invoices. The information below describes additional considerations for finance charge assessment.

Note: Accounting CS does not include Finance charge type transactions in the past due amount and transaction list unless the Compound checkbox is marked for that finance charge in the Calculation Information section of the Finance Charges screen.

## Determining when to assess finance charges

Accounting CS assesses a finance charge if the transaction's due date (plus the finance charge's grace period) is on or before the date in the Calculate finance charges through field (also referred to as the finance charge date).

If you specified an amount in the Customer past due balance field in the Setup > Finance Charges screen for a customer's finance charge definition, Accounting CS assesses a finance charge for the customer only if that minimum has been exceeded. The customer's past due balance is the sum of all open balances for each past due invoice for the customer.

#### Example

• If the minimum customer past-due balance is \$100.00 and a customer has two past-due invoices (one for \$45 and one for \$55) as of the finance charge date, Accounting CS does not assess a finance charge for the customer.
• If the minimum customer past-due balance is \$90.00 and a customer has two past-due invoices (one for \$45 and one for \$55) and one credit memo (for \$25) as of the finance charge date, Accounting CS does assess the finance charge for the customer. However, the application will display a message informing you that there are unapplied payments or credit memos available.

## Calculating finance charge amounts

Accounting CS uses the following formula to calculate the finance charge amount.

Finance charge = Daily Rate * Number of days outstanding

Daily Rate = (Invoice open amount * Finance charge rate)/ Number of days in the year

Number of days outstanding

• If using the transaction date (for Invoice and Finance charge type transactions)

Number of days outstanding = Finance charge date - Transaction date

• If using the due date (for Invoice and Finance charge type transactions)

Number of days outstanding = Finance charge date - Due date

• For previously assessed transactions

Number of days outstanding = Finance charge date - Date fee was last assessed

#### Example

Finance charge rate: 18%

Invoice date: 4/30/11, Due date: 05/31/11, Grace period: 0 days

Invoice open balance: \$500.00

Daily rate calculation: (\$500 * 0.18) / 365 = 0.2466

• Using the transaction date
• If the finance charge date is 07/1/11:

Number of days outstanding (7/1/11 - 4/30/11) = 61 days

Finance charge amount = 0.2466 * 61 = \$15.04

• If the finance charge date 08/1/11:

Number of days outstanding (8/1/11 - 7/1/11) = 31 days

Finance charge amount = 0.2466 * 31 = \$7.64

• Using the due date
• If the finance charge date is 07/1/11:

Days outstanding (7/1/11 - 5/31/11) = 31 days

Finance charge amount = 0.2466 * 31 = \$7.64

• If the finance charge date is 08/1/11:

Days outstanding (8/1/11 - 7/1/11) = 31 days

Finance charge amount = 0.2466 * 31 = \$7.64

## Overriding finance charge amounts

If you override a finance charge amount, the application updates the finance charge amount for minimum finance charge rows based on the override amount for the transaction. If the override forces the overall finance charge amount for the customer to reach the minimum finance charge amount, then the minimum finance charge row will remain, but it will display the amount as \$0.00 in red text.

#### Example

The minimum finance charge is \$10.00 and the customer has two invoices that are past due - one with a finance charge amount of \$5.00 and one with a finance charge amount of \$3.00. The total for the two invoices is \$8.00. Accounting CS adds a minimum finance charge row to the grid with an amount of \$2.00 to make up the difference between the minimum and the total for the two invoices.

If you override the \$3.00 finance charge amount with \$4.00, the amount in the minimum finance charge row changes to \$1.00, and both overrides are displayed in red text. Note that the overall finance charge amount for the customer remains \$10.00.