Hi Binny. Thank you very much for your detailed responses. Do you have
any other advice related to using Fineract for our use case?
Thanks,
Vinayak
On Thu, May 28, 2020 at 1:23 AM Binny Gopinath Sreevas <
binny.gopin...@gmail.com> wrote:
> Hi Vinayak,
>
> To answer your questions:
>
> 1) The decision whether to use Cash based or Accrual based accounting is
> purely based on your organization's policies and you will need to take the
> decision based on discussions with your accountants or finance persons -
> Cash based - interest income is recognized as an income (i.e.
> accounting entries for income is passed by the accounting module) only when
> cash is received on the repayment i.e when customer makes a repayment. And
> not when the installment is due. Example: On an installment that is not
> paid by the customer, the income is never accounted. For a late payment -
> the income is accounted only on the payment date and not on the due date.
> Periodic Accrual - Interest income is recognized on due date and
> accounting entries for income are made by the accounting module along with
> a receivable (asset) also being increased. On the payment date (could be
> the same as or after due date), the receivable is reversed and loan
> portfolio is decreased.
> Upfront Accrual - All interest (full interest for the entire
> period of the loan) is accounted upfront. I am not sure which countries
> would follow such an approach, but to me, this does not seem to be a
> standard way of accounting. Example: a loan given at the end of a financial
> year, will have all income accounted in the financial year - whereas all
> collections may happen only in the next financial year.
>
> 2) Fineract allows backdated transactions, provided you do not "close"
> your accounting. Assume that installment is due on 7th - and you the
> company informed you of the payments only on 10th and today is the 12th.
> You could still make an entry in Fineract for the 7th. If you had done an
> "accounting closure" for the 8th - then system will not allow you to do
> transactions prior to 8th. For the loan product - you could set up a grace
> period ("Number of days a loan may be overdue before moving into arrears" -
> of say 7 days or 10 days) - so that the loan is not shown as In Arrears on
> 8th and is shown as arrears only after the grace period expires.
>
> 3) If you are manually applying late fees, then yes you should backdate
> the fees. If you are allowing Fineract to calculate and apply automatically
> - I do not believe there is a way to give a grace period for overdue
> charges. So in the above example - the overdue charges may get applied on
> 8th. I am not entirely certain on this - you may need to test this behavior
> in Fineract to see if Overdue Charges take into consideration the Loan
> Product level Grace Period. So the charges may need to be manually reversed
> if you do not wish to collect the overdue charges. I have found it hard to
> use the overdue charges for various business scenarios. Hence, please test
> various scenarios before using in production.
>
> Hope this helps.
>
> Thanks
> Binny
>
>
>
> On Wed, May 27, 2020 at 10:15 PM Vinayak Javaly <vina...@urgent.vc> wrote:
>
>> Hello. I'm working for a company in an emerging market that offers
>> salary loans to employees through their employers. I'm looking
>> for guidance on best practices on setting up Fineract for this use case.
>>
>> Here's our scenario:
>> 1) My company disburses the loan amount to the borrower (company
>> employee) directly.
>> 2) The employer deducts the appropriate repayment amount from the
>> employee's salary on their payroll cycle.
>> 3) Sometime after the payroll cycle, the employer sends us the sum of all
>> these payroll deductions and a statement listing each employee's payroll
>> deduction amount. If the employee has left this company, this information
>> is also passed to us.
>>
>> These are the types of questions I have:
>>
>> 1. Should I use cash accounting or accrual accounting (periodic or
>> upfront) for the loan product?
>> 2. Since we do not find out if a borrower has made a loan repayment
>> on its due date, how should we handle this time lag? Should I set a grace
>> period in the loan product to the number of days before I expect the
>> employer to send the funds and repayment info?
>> 3. If a loan repayment is missed, should I back-date the late fee
>> charges?
>>
>> If it's easier to speak about this, I'd be happy to have a call.
>>
>> Thanks in advance.
>>
>> Vinayak
>>
>
