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.
By using loan management, companies can
- Offer flexible payment schedules to customer
- Create loans with amortization schedule with breakup of principal, interest, tax, due date etc.
- Manage bad debt provision for each loan
- Receive loan payment partially or in full
- 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.
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.
Amortization schedule can be previewed prior to confirmation. Each loan line contains the breakup of principal and interest component.
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.
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.
For each loan a real time value of bad debt reserve is calculated and the previous bad debt reserve accrual is reversed.
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.
Customer payment journal is generated automatically to register the payment against the loan.
Payment receipt can be generated and issued to customer.
In case partial payment is received for a loan line then the outstanding principal and outstanding interest is calculated proportionately for the loan line.
A loan can be refinanced from an external financial institution for the outstanding principal value. Refinancers can be maintained as a master.
Refinancer’s contract number, refinancer details and interest rate is captured while creating the refinance contract.
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