2.4.3.1 Advance Fee

This topic describes about the information of advance facility fees processing.

An advance fee is the one that is collected upfront, on the start of the period or service it relates to. An advance fee ensures the fee is collected regardless of future performance or usage and reduces risk for the bank by collecting payment before providing service.

Example:
  • When a customer avails a facility(say takes a loan), the bank can charge a ‘processing fee’ that must be paid at the time of disbursement.
  • If an ‘annual maintenance fee’ for a facility is charged at the start of the year (covering the facility tenure), this is also an advance fee.

Configuration of Arrears Fee:

Fee Rule Maintenance:
  • Advance 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 Advanced 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.
Liquidation of Advanced Fee:
Advance 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 only be opted for fee type ‘User Input’.
    • For fee type as User Input and liquidation as Manual, Arrear Fee is collected manually from Facility Fee Payment Maintenance screen.
    • FLIQ event is triggered at facility once the record is saved in Facility Fee Payment Maintenance screen. You are not allowed to make advance payments. Refer to Facility Fee Payment Maintenance, under Maintenance section.
  • Auto Liquidation can also be opted for both fee type as ‘UserInput’or‘Rate/Amount’.
    • For advance fee on facility, calculated fee amount will be liquidated on the facility start date and accrual will be done for the fee cycle considering the day basis configured for fee rule.
    • For advance fee types as User Input and liquidation as Auto, Arrear fee is collected automatically on the day of facility creation and then based on the frequency.
    • For advance fee types as Rate/Amount and liquidation as Auto, Arrear fee is collected automatically on the day of facility creation (and then based on frequency) based on the balances of underlying SDEs.

Note:

  • Manual Liquidation for Advance fee is supported only for fee type ‘User Input’Ifon facility start date, the SDE closing balance is 0 the fee is not collected.
  • Fees are collected from the date the balances are updated.
  • In this case, if the balances are updated in mid of the fee liquidation cycle the fees are adjusted as part of PRLQ (PRLQ_REC/PRLQ_PAY) event triggered on cycle last date.
  • Fee accrual starts from the date the balances are updated
Example of Advance Fee Liquidation and Accrual:
  • Note: that this is a sample to show how an Advance fee calculation works. Actual calculation will differ based on other parameters.
  • Advance 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 Advance 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 2-126 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 2-127 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