Overview of Processing Late Charges for Receivables in Oracle Fusion Applications

What is a late charge? 

It's a fee and/or penalty assessed against overdue customer transactions (Invoice or a debit memo).

What options do you have in the receivables applications to present late charges to your customers?

You have three options called late charge types. These are as follows:

1. Adjustment. And so if you record late charges as adjustments, then Receivables combines all the interest charges relating to an overdue transaction, and creates a single Late Charge adjustment against the transaction. In other words, that adjustment is going to increase the balance of that transaction.So if you pick adjustments, and you are assessing fees as well as penalties, then Receivables will create two adjustments-- one for the fee, and one for the penalty.
2. Debit memos. If you record late charges as debit memos, then Receivables will create one debit memo per overdue transaction. Additionally, if you also assess penalty charges, then Receivables includes a separate line for penalty charges on the debit memo.
3. Interest invoice. if you record late charges as interest invoices, then Receivables will create a single interest invoice per customer site and currency. So think of this interest invoice as a way to consolidate charges so that the customer receives one single document. So they'll receive one single interest invoice that will detail charges for all the invoices that were overdue, and therefore are being assessed a charge. 

What's needed to implement the late charges feature?

Defining a late charge policy is required  to implement the late charges feature. A late charge policy is basically a configuration required for your late charge documents. Below are some configurations required to implement the late charges feature:

1. Define Receivable Activities. Defining Receivables activities is needed for Interest charges, as well as Penalty charges. For Example when Receivables is creating an adjustment, it will need to know which GL accounts to use. The Receivables activity setup will provide the information how to generate accounting distributions. To know how to define a Receivables activity, check out a separate article: Overview of Managing Receivables Activities in Oracle Fusion Applications.
2. Define Transaction Types. If the late charge document is going to be a debit memo or an interest invoice, you would need to define the transaction types for those debit memos or interest invoices.
3. Turn on the Late Charges Option in Receivable System Options. Make sure that the Late Charges feature is enabled in Receivable System Options for the system to assess late charges on overdue transactions. This is an option defined per business unit. To know more about the configurations available in the Receivable System Options check out a separate article: Overview of Managing Receivable System Options in Oracle Fusion Applications.
4. Customer Profile Classes. When you go the a customer profile class setup, there are two tabs. One of them is specific to the late charge feature. There's an option to enable late charge for any customers associated with the said profile class. Two Important fields here is the "Late Charge Calculation Method" and "Late Charge Type". For "Late Charge Calculation Method", this identifies if you are going to assess late charges on overdue invoices only, on late payments, or both. For "Late Charge Type", this identifies the document to be used for late charges.

Late Charge Calculation Method

When you set up a late charge profile for your customers, you must decide the method to use to calculate late charges.

You select the calculation method in the Late Charge Calculation Method field in the Credit Limits and Late Charges tab of the Customer Profile Class pages, or on the applicable customer or customer site profile.

The interest calculation methods are:

• Average Daily Balance: Calculate late charges based on the average daily balance of overdue invoices. This method is for balance forward bills only.
• Late Payments Only: Calculate late charges based on the number of days between the payment due date and the actual payment date. This method uses the paid amount as the overdue invoice amount when calculating the late charge.
• Overdue Transactions Only: Calculate late charges for transactions based on the number of days a payment is late when you submit the Create Late Charges program.
• 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, your enterprise calculates late charges on the 15th and 30th of each month. Your customer has an overdue invoice of $100 that falls due on November 16:
  • On November 30, you run the Create Late Charges program. The program calculates late charges for this overdue invoice.
  • On December 10, your customer pays the invoice.
  • On December 15, you run the Create Late Charges program again. The program assesses further charges for the additional 10 days that the payment was overdue.

There are three different interest calculation formulas that Oracle delivers out-of-the-box:

1. Flat rate - Receivables will ignore the number of days that a payment is overdue.
2. Simple
3. Compound

1. Interest Tiers and Charge Schedules. - The concept of Interest tiers are interest rates that's increasing as time goes on. So the longer that transaction is overdue, the higher the interest rate will be. The below table is an example. A charge schedule is shown with four interest tier periods, along with interest rates assigned to those interest periods.

Days Overdue Tiers	Interest Rate
1-30 Days	2%
31-45	3%
46-60	4%
Over 60 Days	5%

If the transaction is overdue between 1 and 30 days, you are charging 2%. If the transaction is overdue between 31 and 45 days, you are charging 3%, and so on or so forth.

To use Interest Tiers and Charge Schedules, enable the option "Use Multiple Interest rates" in the Customer Profile Class, inside the "Late Charges" tab.

To review the Interest Tiers and Charge Schedules, go to the Functional Setup Manager and select the "Manage Interest Tiers" and "Manage Charge Schedules" Task, respectively.

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