2.4.3.2 Arrears Fee

This topic describes about the information of accrual and arrears facility fees processing.

An arrears fee is a one that is collected after the period or service it relates to has been provided or has ended. This allows fee calculation based on actual usage or service provided and more favorable to customers who prefer to pay after services are rendered.

Example:
  • When a customer avails a facility (say takes a loan), the bank can charge a commitment fee for the unused portion of the approved facility, to compensate for keeping funds available. The commitment fee is calculated daily but charged at the end of each quarter (in arrears).
  • Another example can be an annual fee for a credit facility charged after the first year of usage, it is an arrears fee.

Configuration of Arrears Fee:

Fee Rule Maintenance:
  • Arrears fee can be of type User Input or Rate/Amount selected in Fee Rule Maintenance screen.
    • User Input can only be specified in terms of amount value
    • Rate/Amount is based on the underlying SDE selected in SDE Type
    • For User Input or Rate/Amount,the value specified is considered for the whole liquidation cycle (frequency) and accrued accordingly based on the day basis.
      • For example,Fee Amount=2400,Accrual Frequency=Daily,liquidation frequency= Monthly, Days in month = 30, Day Basis = Actual/Actual
      • Fee accrued per day is 2400/30=80.This process is repeated for every schedule(in this case every month). Refer to Fee Rule Maintenance section in Enterprise Limits and Collateral Management Common User Guide.
Fee & Accounting Class Maintenance:
  • You can capture Liquidation Method as Arrears in the Fee & Accounting Class Maintenance screen for a fee rule code in Preferences data segment.
  • At the time of facility creation in Facility Maintenance screen, this value gets defaulted as ‘Arrears’ in Liquidation Method field in facility Fee preference data segment. Refer to Fee and Accounting Class Maintenance section in Enterprise Limits and Collateral Management Common User Guide.
Configuration of Arrears Fee:
Fee Rule Maintenance:
  • Arrears fees can be collected/liquidated both manually or automatically (configured in liquidation preference in Fee & Account Class Maintenance screen as Manual or Auto.)
    • Manual Liquidation can be opted for both fee type as ‘User Input’ or ‘Rate/Amount’.
    • FLIQ event is triggered at facility once the record is saved in Facility Fee Payment Maintenance screen. Refer to Facility Fee Payment Maintenance.
  • Auto Liquidation can also be opted for both fee type as ‘UserInput’or‘Rate/Amount’.
    • For arrears fee on facility,accrual will be done for the fee cycle considering the day basis configured for fee rule and accrued fee amount will be liquidated on the liquidation date.
    • For arrears fee type as Rate,daily accrual will be calculated on basis amount considering day basis and consolidated accrual amount till end of fee cycle will be liquidated on the fee liquidation date.
    • For arrears fee type as User Input and amount-based fee, per day accrual will consider the day basis which will sum unto user input or amount specified and same amount will be liquidated on the liquidation date.

Note:

  • Manual and Auto Liquidation for an Arrears Fee is supported for both Fee type as ‘User Input’ or ‘Rate/Amount
  • Arrears Fees are collected from the date the SDE balances are updated.
  • If the SDE balances are updated in mid of the fee liquidation cycle the fees are adjusted event triggered on cycle last date.
Example of Arrears Fee Liquidation and Accrual:
  • Note that this is a sample to show how an Arrears fee calculation works. Actual calculation will differ based on other parameters.
  • Arrears Fee of type ‘Rate’ based on Utilization Amount
Fee Details:
Fee Rule Fee Type SDE Day Basis Liquidation Preference Liquidation Frequency Accural Frequency Facility Start Date Fee Rate Utilization Amount Period 1st Fee Liquidation Date(system calculated)
UTILFEE Rate UTIL_AMT Actual/Actual Arrears Monthly Daily 5-Apr-24 10% $10,000 30 5-May-24
Calculation Logic:
Step Description Formula/Calculation Result
1 Per Day Fee Rate Calculation 10% ÷ 365 0.0274%
2 Per Day Fee Amount $10,000 × (10% ÷ 365) $2.74
3 Total Fee for 30 Days (Month of April) Per Day Fee Amount * 30 $82.19
4 1st Fee Liquidation date End of Fee Cycle 5-May-24

Accounting Entries:

FACR:

Table 2-128 FACR

Accounting Role Amount Tags Dr/Cr. indicator Amount Value date
UTILFEEINC UTILFEE_ACCR Cr $2.74 5-May-24
UTILFEEREC UTILFEE_ACCR Dr $2.74 5-May-24
FLIQ

Table 2-129 FLIQ

Accounting Role Amount Tags Dr/Cr. indicator Amount Value date
UTILFEEREC UTILFEE_LIQD Cr $82.19 5-May-24
CUSTOMER UTILFEE_LIQD Dr $82.19 5-May-24

Parent topic: Processing of Facility Fees - Advanced and Arrears