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 >> >