1. Bills and Collections User Guide
  2. Automatic Processes
  3. Processes Running during Beginning of Day (BOD)
  4. Automatic Liquidation of Bills
  5. Creation of Loan during Auto Liquidation

8.4.1.6 Creation of Loan during Auto Liquidation

The system creates loans for the shortfall amount during auto liquidation of a bill contract. For such loan creation, the statuses of the following check boxes are considered:
  • Advance by Loan
  • Settle Available Amount
  • Liquidate Using Collateral
If you have checked the options Advance by Loan and Settle Available Amount; the bill contract is liquidated as given below:
  • The system verifies the amounts of customer account balance and the OD limit for liquidating the bill based on approved block amount received in response to request sent to accounting system during ECA batch. Refer section 9.4.1.1 for more details
  • The balance amount is then debited from the customer based on availability in order to adjust the shortfall.
  • If the customer account balance is not sufficient, the system creates a loan for the shortfall amount during auto liquidation. This loan is created based on the loan preferences maintained for the product.

If you have checked the option ‘Liquidate Using Collateral’ along with ‘Advance by Loan’ and ‘Settle Available Amount’, the bills contract is liquidated as given below.

The system adjusts the collateral amount towards settling the balance of the bill

In case the value of the collateral is not sufficient to liquidate the bill, the system checks the customer account balance for the remaining liquidation amount and adjusts that amount towards the settlement.

If the collateral amount is not sufficient, the system creates a loan for the shortfall amount.

Now, suppose that you have checked the option ‘Advance by Loan’. At the same time, the options ‘Settle Available Amount’ and ‘Liquidate Using Collateral’ are not checked. In that case, the system creates a loan for the entire bill outstanding amount without checking any of the available balances

Consider the following examples:

Collateral is less than the bill amount:

Consider a bill for an amount of GBP 10000. The following check boxes are checked.
  • Advance by Loan
  • Liquidate Using Collateral
  • Settle Available Amount
The properties of the collateral and the customer account balance are given below:
  • Collateral: GBP 3000
  • Customer Account Balance: GBP 4000

While liquidating, initially, the system recovers GBP 3000 from the collateral. Further GBP 4000 is debited from the customer account. These amounts together settle GBP 7000 of the total bill amount of GBP 10000. For the remaining GBP 3000, the system creates a loan.

The system passes the following accounting entries on liquidation:

Table 8-5 Accounting entries on liquidation

Account Debit/Credit Amount
Collateral A/c Dr 3000
Nostro A/c Cr 3000
Customer A/c Dr 4000
Nostro A/c Cr 4000
Loan Bridge GL Dr 3000
Nostro A/c Cr 3000

Collateral is greater than the bill amount:

Consider a bill for an amount of GBP 10000. The following check boxes are checked.
  • Advance by Loan
  • Liquidate Using Collateral
  • Settle Available Amount

The properties of the collateral and the customer account balance are given below:

Collateral: GBP 12000.
  • Here the collateral amount is more than the Bill Amount so that the full collateral amount is assigned to the debit leg (S01).
  • The remaining amount is computed by subtracting the collateral amount from the bill liquidation amount, and the amount is negative.
  • If this remaining amount is negative, then the same will be assigned to split tag master (S02) with the negative value and with the Customer Account details. This will credit the excess amount to the customer’s account.

While liquidating, initially, the system recovers GBP 10000 from the collateral. Further GBP 2000 is credited to the customer account.

The system passes the following accounting entries on liquidation:

Table 8-6 Accounting entries on liquidation

Account Debit/ Credit Amount
Collateral A/c Debit 12000
Nostro A/c Credit 10000
Customer A/c Credit 2000

Parent topic: Automatic Liquidation of Bills