Commission for LC Amendment

2.2.5 Commission for LC Amendment

An amendment to certain details of an LC has an impact on the method of commission calculation and collection. The following amendments result in an amendment commission, being applied:

An increase in the LC amount
An extension of the Expiry date, beyond the Good Until Date

a. An increase in the LC amount

If you amend a non-periodic LC, to increase the LC amount, the system maintains two separate commission records. Each of these records will be processed separately.

You can specify a new commission Rule (commission base parameters) for the amended amount or continue with the rule defined for the initial LC. The system uses the amendment date as the start date of the new LC. Based on the start date and the rate period specified for the amended amount, a new good until date is computed.

If a flat amount was specified for the initial LC, then only a flat amount can be entered again. If the commission has been entered as non-periodic initially, then only non-periodic type commission can be entered. The re-entering of non-periodic commission details will only change the commission details (base) for any future commission calculations. This is possible only if the LC amount is increased or the expiry date is changed to a date later than the existing Good until date till which commission has been calculated.

The same commission calculation formula as described above is used to determine the Amendment Commission and to establish the LC validity.

If the LC amount is decreased either through an amendment or because of an availment, there will be no additional commission charged nor will there be a refund of commissions, already collected.

b. If the LC Expiry Date is Changed

If you amend an LC to affect an extension in the expiry date that is earlier than the Good Until Date, the system will not have to calculate any additional commission. The existing commission calculations already cover that period.

c. Expiry Date Extended to a Date After Good Until Date

You can amend an LC to process an extension in its expiry date. If the new date falls after the Good Until Date defined for the calculation of the initial LC, then a new calculation amount is computed for the applicable commission rule, for the new rate period.

This may require more than one Rate period to be covered depending on the length of the extension. The system determines the amount it should calculate as the additional commission.

Specifying Include To Date

Select this option to include the expiry date also for calculation of commission otherwise it is not included for commission calculation.

Validations:

You can specify Include To date only for commission components whose rounding period is zero
For commission components with rounding period not zero, the expiry date is always included for commission calculation
During copy operation the Include to Date value should be copied to the new product and this can be changed at any point of time.

LC commission calculation logic when rounding period is zero (Days basis) is as follows:

Total commission amount = (LC Amount * Commission Rate * Tenor in days)/ (Total days/ 100)

Where Tenor in days = (Expiry date – Start date) +1

The above logic would be changed as follows:

If include to date is ‘yes’ then the above logic holds good.

If include to date is ‘No’ then,

Total commission amount = (LC Amount * Commission Rate * Tenor in days)/ (Total days/ 100)

Where Tenor in days = (Expiry date – Start date)

The accrual processing function would also be changed to exclude accrual on commission end date if include to date is set to ‘No’.

Parent topic: Commission Collection