For the AR Aging Report, receivables are normally aged by Invoice Date and fall into slots typically set up as:
- Current
- Over 30 days
- Over 60 days
- Over 90 days
Although Finance Charges can also be assessed based on the invoice date, it is common to charge them only after an invoice has become "past due" (was not paid on time.) The length of time that a customer is given to pay their bill (before it is considered "past due") is controlled by assigning a Terms Code to their customer record. In the Terms Code is the concept of 'due days': the number of days allowed to pay an invoice before it is "past due". Some customers may be granted 30 days, while others may have 'no days' -- meaning that their invoices are due immediately.
A. TERMS CODES
Below is an example of a Terms Code record that allows 30 days from the invoice date before the invoice is considered past due.
Maintain terms codes WELCOME TO CARS+ DEMO SYSTEM
Add
1 Terms code N30 21 Avoid weekend days?
2 Description NET 30 DAYS 22 Avoid holiday days?
3 Due days 30 23 Use Business days?
4 Discount days 0
5 Discount pct .00
6 Last Day of Period 1
7 Due Month for Period 1
8 Due Date for Period 1
9 Last Day of Period 2
10 Due Month for Period 2
11 Due Date for Period 2
12 Last Day of Period 3
13 Due Month for Period 3
14 Due Date for Period 3
15 Last Day of Period 4
16 Due Month for Period 4
17 Due Date for Period 4
18 Last Day of Period 5
19 Due Month for Period 5
20 Due Date for Period 5
Field number to change ? ___
Place the appropriate Terms Code in the Customer Record. Example:
OPTION: __ CUSTOMER FILE UPDATE
(PAGE 2/5
Cust# ABC ABC CORP 19 Balance 2150.00
1 Contact 20 Last Pmt Amt 255.36
2 Customer Type DB 21 Last Pmt Date 01-20-14
3 Balance Meth O 22 Tickets
4 Stmt Cycle I 23 Last Date
5 CR Limit 1000 24 Accidents
6 CR Rating 25 Last Date
7 Fin Chg Flag Y 26 Entry Date 05-13-06
8 Terms Code N30 27 Last Activity 02-05-14
9 Discount % 28 Times Rented 2
10 EDI Flag 29 Billing Format
11 Tax Code 30 AROPEN Res ref D
12 A/R Account 31 Corporate std N
Foreign Location: 32 Wsale Calc Met
13 % split Foreign 33 One-way Exempt
14 % split Owning 34 APFEE Exempt?
15 Salesman 35 Fuel Code
16 Locator 36 Req Bill-to Auth
17 Sales PTD 37 Drop Zone
18 Sales YTD Last Modified 02-20-14
1SAVE 2NEXT 3ERASE 4Assign# 5 6SEARCH 7HELP 8NXT PAGE
B. A/R CONTROL FILE - Finance Charge fields (Fields 10 - 16)
The RealWorld Accounts Receivable manual chapter for Maintain A/R Control Data explains the use of Fields 10 - 16. This chapter will concentrate on Fields 13 and 14 only.
Maintain A/R control data
1. Age by invoice or due date I
2. # age days in period 1 30
3. # age days in period 2 60
4. # age days in period 3 90
5. # age days in period 4 999
6. Aging period 1 description Current
7. Aging period 2 description Over 30 days
8. Aging period 3 description Over 60 days
9. Aging period 4 description Over 90 days
10. Finance charge pct - level 1 12.00
11. Level 1 cut-off amount
12. Finance charge pct - level 2 .00
13. Age past due by what date ? D
14. # days past-due for F/C 30
15. Minimum finance charge .00
16. Calc fin chgs on fin chgs ? N
17. Print company name on stmt ? Y
18. Current period end date 12-31-XX
Field number to change ? ___Field 13: Age past due by what date?
Choices are: Due Date or Invoice Date
Due Date:
If due date is selected, it is number of 'due days' in the Terms Code assigned to the customer record that determines the due date. As mentioned earlier, some customers may have terms that allow the due date to be 30 days after the invoice date. Other customers may be allowed 7 days, or 10 days. Still others may have a Terms Code that allows for zero due days - meaning that their invoices are due on same date as the invoice date.
Invoice Date:
When invoice date is selected, the Terms Code on the account is ignored.
Field 14: # of days past due for F/C
This defines the number of days an item must be "past due" before it is subject to a finance charge.
USER TIP: When processing finance charges, the 'cut off date' field also affects when an invoice is subject to a finance charge. See the section below.
When processing finance charges, a "cut off date" must be entered in Field 1. The combination of the finance charge fields in the AR Control File and the cut-off date determine whether or not a past-due invoice will be subject to finance charges.
Process finance charges
Calculate
Please enter:
1. Cut-off date ________
2. Statement cycles
3. Include payments
after cut-off date ?
4. Exclude customers with
finance charges already
calculated after
Finance charges are calculated only if the the days past due (as defined in Field 13 of the control file) have been reached by the cut off date.
Example:
The ABC Corp. account has Terms Code N30. (It allows 30 days after the invoice date before an item is considered "past due".)
The following invoices are outstanding:
invoice # Invoice Date Amount Past due if not paid by 1 Dec. 20 502.00 Jan. 19 2 Jan. 15 300.00 Feb. 14 3 Jan. 30 1020.00 March 1 4 Feb. 14 810.00 March 16
A. Age past due by Invoice Date (Field 13 of the control file = I )
1. Process Finance Charges; enter cut off date of Jan. 31
Result: Finance charge calculated on Invoice 1 since 30 days have gone by since the invoice date. No other invoice is subject to finance charges.
2. Process Finance Charges; enter cut off date of Feb. 28
Result: Finance charges calculated on Invoices 1 and 2 (30 days or more have gone by since the invoice date). No other invoice is subject to finance charges.
B. Age past due by Due Date (Field 13 of the control file = D )
1. Process Finance Charges; enter cut off date 31 January.
Result: No finance charges on this account. Nothing has been past due for more than 30 days.
2. Process Finance Charges with cut off date of Feb. 28:
Results: Finance charge calculated on Invoice 1 since 30 days have gone by since the due date of January 19. No other invoice is subject to finance charges.
It is the combination of several things that determine which items are subject to finance charges. These are:
- AR Control File, Field 13: Age past due by Invoice or Due date
- AR Control File, Field 14: Number of days past due required to generate a finance charge
- Customer File: Terms Code (if using the Due Date)
- Process Finance Charges: Cut-off date