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Financing and Loan Management

Financing or Loan management is a common business requirement in today’s competitive business age.  Financial institutions that finance customers for different requirements (home loan, vehicle loan, business loan, personal loan etc.) can use loan management to design a loan and manage day to day operations related to it.

Loan management can also be used by companies that deal in products which are generally expensive. These companies have to supplement the sale by offering suitable financing options to customers in order to make the sale.  Not only companies can make a sale (for a value which was normally out of customer’s reach) but also it can earn additional revenue in terms of finance charges, interests or penalties. Customer can always approach an external financing entity for loan however in-house financing option gives additional flexibility to companies.

Companies that provide in-house financing can also sell loans to external financing entities in case they need cash.  Loan management facilitates loan refinancing where one or more loans can be grouped and refinanced in a single refinance contract.  Companies can pay the refinancer as per the agreed payment schedule.

Loan Management with Microsoft Dynamics AX

By using loan management, companies can

  1. Offer flexible payment schedules to customer
  2. Create loans with amortization schedule with breakup of principal, interest, tax, due date etc.
  3. Manage bad debt provision for each loan
  4. Receive loan payment partially or in full
  5. Refinance a loan by selling the loan to an external institute

Flexible payment schedule

Payment schedule is used to design the overall structure of a contract value. Overall split of contract value across different billing classifications like customer’s contribution and financer’s contribution (loan value) can be defined.  Different payment schedules can be created for different percentage shares of customer contribution and financer’s contribution. Additional important details like finance rate, loan repayment period or duration are defined in payment schedule.

Flexible payment schedule

Create sales contract and amortization schedule

A payment schedule can be linked with a sales order and the related amortization schedule can be generated automatically.

Create sales contract and amortization schedule

Amortization schedule can be previewed prior to confirmation. Each loan line contains the breakup of principal and interest component.

Create sales contract and amortization schedule

All confirmed payment schedules are updated in the loan management module as active loans.  All loans can be monitored centrally to identify loan value, principal paid, bad debt reserve details etc.

Create sales contract and amortization schedule

Manage bad debt reserve for loans

Financial institutions need to lock a certain portion of the loan as reserve. Bad debt reserve is defined as the percentage of outstanding principal.  Outstanding principal is a dynamic value that keeps on changing as per the payment receipt.  Each time bad debt reserve is calculated for a loan, it should reverse the previous bad debt reserve and pass new bad debt reserve entries.  Bad debt reserve can be periodically calculated centrally for all loans as per the bad debt reserve percentage defined in loan management parameters.

Manage bad debt reserve for loans

For each loan a real time value of bad debt reserve is calculated and the previous bad debt reserve accrual is reversed.

Manage bad debt reserve for loans

Receive loan payment

As and when payment towards a loan is received, the same needs to be registered against the loan. Microsoft Dynamics AX supports partial and full payment of a loan line. Also a single payment can be received for multiple loan lines.  Payment value is allocated to loan lines in a sequential order.

Receive loan payment

Customer payment journal is generated automatically to register the payment against the loan.

Receive loan payment

Payment receipt can be generated and issued to customer.

Receive loan payment

In case partial payment is received for a loan line then the outstanding principal and outstanding interest is calculated proportionately for the loan line.

Receive loan payment

Refinancing loan

A loan can be refinanced from an external financial institution for the outstanding principal value.  Refinancers can be maintained as a master.

Refinancing loan

Refinancer’s contract number, refinancer details and interest rate is captured while creating the refinance contract.

Refinancing loan

For any additional questions, please email us at dynamics@ignify.com

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