Calculating the broker commission
Overview
Broker commission is calculated using one of the following types of commissions:
Upfront
Trail
Top-up
Each type of commission can be a percentage or a flat amount. If it is a percentage, then a Commission On value must be selected to calculate the percentage on. You can select any of the following Commission On amounts:
Loan Balance
Principal Remaining
Consolidated Balance
Calculating upfront commission
For any contract, when a loan amount is disbursed, the system calculates the upfront commission amount for all the active commission-able items of the commission plan that is linked to the broker account and the loan contract.
Once a broker commission is calculated, the system creates a Broker Transaction for each commission-able item.
Example: Commission type = Upfront
Let us look at an example to understand how Broker Commission is calculated when the Commission Type is Upfront.
Let us say a Commission Plan is created with a Commission Item of the type Upfront associated with it.
Create a contract with the following details:
Field Value Loan Amount $10,000 Interest Rate 10% Term 10 Time Counting Method Month and Days Add Contract Party details by selecting the created Commission Plan, the broker account, and the following details:
Field Value Variance 15.65 Commission Method Percentage Commission Type Upfront Commission Value 23.56 Start Date Application Date End Date Maturity Date Disburse the loan.
The system then calculates the broker commission as follows:
Broker commission = (Loan Amount x Total upfront /100)
= 10,000 x (23.56 + 15.65)/100
= $3,921.
Once the system calculates this, it creates a Broker Transaction within the system.
For more information on a Broker Transaction, see The Broker Transaction tab.
Calculating trail commission
For a loan contract to consider a trail commission for the broker, it's corresponding lending product must have the Create Summaries flag set to true. This helps in the internal calculations as the loan balance records of the Loan Transaction Statement are referred to for those calculations.
Example: Commission type = Trail
The system internally performs the following steps if the Commission type selected is Trail:
The system picks up all the commission-able items for all contracts.
It then takes the LTS records between the last commission date and the current commission date to fetch the loan balance at each event in a loan contract.
Then the system calculates the trail broker commission for each commission-able item using the loan balance available at the time of that event till the current commission date.
Once the broker commission is calculated for every commission-able item, it then creates a Broker Transaction record for each commission-able item.
Calculating commission with a principal adjustment and a deposit transaction in loan
Example: Loan with Principal Adjustment and Deposit to Loan Transfer
Let us look at an example to understand how Broker Commission is calculated when there is a principal adjustment and a deposit transaction in a loan.
Let us say the following types of Commission Items are created in the system:
Commission Item Commission type Commission Method Commission Value 1 Upfront Percentage 12.56 2 Trail Percentage 12.56 3 Top-up Percentage 12.56 4 Upfront Flat Amount 500 5 Trail Flat Amount 500 6 Top-up Flat Amount 500 Create a deposit contract with the following values:
Field Value Payment Application Mode Deposit Contract Date September 1, 2013 Term 11 Loan Amount 10,000 Interest Rate 10% Time Counting Method Month and Days Is Interest Posting true Interest Posting Frequency Billing Frequency Billing Frequency Monthly Add Contract Party details with the following details for the Variance:
Commission Method Variance Percentage 7.56 Flat Amount 100 Approve and disburse this loan.
Then add $4,582 amount to the principal by doing a Principal Adjustment.
This changes the Loan Balance to $10,000 + $4,582 = $14,582.
Note:To do a Principal Adjustment, go to Loan Quick Menu > Loan Actions > Principal Adjustment.
Move the Current System Date to October 1, 2013.
Add $5,000 to deposit by doing a Deposit Adjustment.
Note:To do a Deposit Adjustment, on the CL Contract page, scroll down to the Deposit Details tab and select Deposit Adjustment.
Transfer $5,000 from the deposit to the loan contract by performing a Deposit to Loan Transfer.
This changes the Loan Balance to $14,582 - $5,000 = $9,582.
Note:To do a Deposit to Loan Transfer, go to Loan Quick Menu > Loan Actions > Deposit to Loan Transfer.
An internal transfer of payment gets created that satisfies the interest and the principal components.
Loan balance remains as $9,582.
Move the Current System Date to November 1, 2013.
When a broker commission is calculated in a loan where there is a deposit transaction involved, then you can select Consolidated Balance to calculate the commission percentage on. For this, for the field Commission On, select the value as Consolidated Balance. Selecting the Consolidated Balance makes sense only when there is a deposit transaction involved. For all other events, Consolidated Balance is the same as Loan Balance.
The Broker Commission is calculated as follows:
| Date | Event that triggers commission | Commission Method | Commission type | Broker Commission |
|---|---|---|---|---|
| September 1, 2013 | Disbursal | Percentage | Upfront | Loan Balance *(Commission Value + Variance)/100 = 10,000 * (12.56 + 7.56)/100 = $2,012 |
| September 1, 2013 | Disbursal | Flat Amount | Upfront | Upfront + Variance = 500 + 100 = $600 |
| September 1, 2013 | Principal Adjustment | Percentage | Top-up | (4,582 *(12.56+7.56)/100) = $921.90 |
| September 1, 2013 | Principal Adjustment | Flat Amount | Top-up | 500 + 100 = $600 |
| October 1, 2013 | Change of Current System Date that triggers the BrokerCommissionJob of the Start of Day Job Chaining | Percentage | Trail | ((14,582 * (12.56+7.56) * 30) / 36000) = $244.49 |
| October 1, 2013 | Change of Current System Date that triggers the BrokerCommissionJob of the Start of Day Job Chaining | Flat Amount | Trail | 500 + 100 = $600 |
| November 1, 2013 | Change of Current System Date that triggers the BrokerCommissionJob of the Start of Day Job Chaining | Percentage | Trail | ((9,582 * (12.56+7.56) * 30) / 36000) = $160.65 |
| November 1, 2013 | Change of Current System Date that triggers the BrokerCommissionJob of the Start of Day Job Chaining | Flat Amount | Trail | 500 + 100 = $600 |
Calculating commission when there is a backdated payment in a loan
After a backdated payment is made in a loan where commission is already calculated, the system updates the Broker Transaction with new values and the difference between the old and new value is stored in the Adjusted Amount or Pending Adjustment Amount depending on whether the Broker Transaction is to be paid or already paid.
To get a detailed understand on the Adjusted Amount and the Pending Adjustment Amount fields, see More information on fields on the Broker Transaction page.
To understand this, do the following:
Create a contract with Trail commission item.
Move to the first commission posting date and run BrokerCommissionJob.
Move a few days ahead and make a backdated payment before the Previous Commission Posting Date
Run the BrokerCommissionJob again after payment is cleared.
You see that the Transaction Amount on the Broker Transaction is updated with the new broker commission value and the difference between the old and new value is stored in the Adjusted Amount field.
Key points related to backdated payment
Unlike IPT transactions, the Broker Transactions are not recreated. Instead, the existing transactions are updated whenever there is a backdated payment.
When a you make a backdated payment, the Next Commission Posting Date and Previous Commission Posting Date are updated accordingly, and once the BrokerCommissionJob is run, the transactions are then updated.
Next Commission Posting Date and Previous Commission Posting Date is set at disbursement.
Adjusted Amount = Old Broker Transaction Commission Value before backdated payment - New Broker Transaction Commission Value after backdated payment
Adjusted Amount is only an informative field to inform you that the new broker commission value is different from the old one by this amount.
The system currently only supports broker commission calculation up to one cycle of backdated payment.
Example 1: Loan with backdated payment for a Flat Amount Commission Method
Let us look at an example to understand how Broker Commission is calculated when there is a backdated payment made in a loan where the Commission Method is Flat Amount
Let us create a Commission Plan with a Commission Item as follows:
Commission type Commission Method Commission Value Upfront Flat Amount 500 Trail Flat Amount 500 Top-up Flat Amount 500 Let us create a loan contract with the following values:
Field Value Periodic Fee Amount 100 Current System Date September 1, 2013 Fees Capitalized
true
Payment Application Mode Future Dues Time Counting Method Actual Days Term 11 Interest Posting Frequency Billing Frequency Billing Frequency Monthly Loan Amount $95,683.56 Interest Rate 13.56% Funding in Tranches true Add Contract Party details by adding the broker commission plan with a Variance of 100 for Upfront, Trail, and Top-up.
Disburse $55,000
Move the Current System Date to October 1, 2013.
Make a backdated payment for September 29, 2013 of $3,342.76.
Move the Current System Date to the next day, which is October 2, 2013.
The Broker Commission for Flat Amount is calculated as follows:
| System Date | Event that triggers commission | Next Commission Posting Date | Commission type | Broker Commission |
|---|---|---|---|---|
| September 1, 2013 | Disbursal | October 1, 2013 | Upfront | 500 + 100 = 600 |
October 1, 2013 | Change of Current System Date that triggers the BrokerCommissionJob of the Start of Day Job Chaining | November 1, 2013 | Trail | 500 + 100 = 600 Note: For Commission On Principal Remaining, the capitalized fee is not added to calculate the broker commission amount |
October 1, 2013 | Backdated Payment of $3,342.76 for September 29, 2013 | October 1, 2013 Note: After backdated payment, this date is updated to October 1, 2013 again. To change, you must move to the next date so that the BrokerCommissionJob runs and updates this date to November 1, 2013. | Trail | 500 + 100 = $600
|
| October 2, 2013 | Change of Current System Date that triggers the BrokerCommissionJob of the Start of Day Job Chaining | November 1, 2013 | Trail |
|
Adjusted Amount = Old Broker Transaction Commission Value - New Broker Transaction Commission Value.
In case of a Flat Amount, the Commission Value does not change as it is a flat amount and so the Adjusted Amount does not change as the Broker Transaction record does not change. However, in case of a percentage commission, the Broker Transaction record gets updated with new values. Let us understand this with the following example.
Example 2: Loan with backdated payment for a Percentage Commission Method
Let us look at an example to understand how Broker Commission is calculated when there is a backdated payment made in a loan where the Commission Method is Percentage.
Let us create a Commission Plan with a Commission Items as follows:
Note:The Commission On is selected as Loan Balance by default.
Commission type Commission Method Commission Value Upfront Percentage 12.56 Trail Percentage 12.56 Top-up Percentage 12.56 Let us create a loan contract with the following values:
Field Value Periodic Fee Amount 100 Current System Date September 1, 2013 Fees Capitalized
true
Payment Application Mode Future Dues Time Counting Method Actual Days Term 11 Interest Posting Frequency Billing Frequency Billing Frequency Monthly Loan Amount $95,683.56 Interest Rate 13.56% Funding in Tranches true Add Contract Party details by adding the broker commission plan with a Variance of 7.56 for Upfront, Trail, and Top-up.
Disburse $55,000.
Move the Current System Date to October 1, 2013.
Make a backdated payment for September 29, 2013 of $3,342.76.
Move the Current System Date to the next day, which is October 2, 2013.
The Broker Commission for Trail is calculated as follows:
| System Date | Event that triggers commission | Next Commission Posting Date | Commission type | Broker Commission |
|---|---|---|---|---|
| September 1, 2013 | Disbursal | October 1, 2013 | Upfront | ((55,000 + 100) * (12.56 + 7.56)) / 100 = $11,066.00 |
October 1, 2013 | Change of Current System Date that triggers the BrokerCommissionJob of the Start of Day Job Chaining | November 1, 2013 | Trail | ((55000 + 100) *(12.56 + 7.56) *30) / 365000 = $911.18 Note: For Commission On Principal Remaining, the capitalized fee is not added to calculate the broker commission amount. |
October 1, 2013 | Backdated Payment of $3,342.76 for September 29, 2013 | October 1, 2013 Note: After backdated payment this date is updated to October 1, 2013 again. To change, you must move to the next date so that the BrokerCommissionJob runs and updates this date to November 1, 2013. |
| |
| October 2, 2013 | Change of Current System Date that triggers the BrokerCommissionJob of the Start of Day Job Chaining | November 1, 2013 | Trail |
|
Adjusted Amount = $907.50 - $911.18 = -3.68.
For more information on the Adjusted Amount and related fields on the Broker Transaction, see More information on fields on Broker Transaction.
Fee and charge capitalization
If a fee or a charge is capitalized, then it gets added to the Loan Balance.
If the Calculation Method = Percentage in commission item, then the broker commission can be calculated for the Commission Items that can be Calculated On the following three options:
Loan Balance: If the fee is capitalized, then it gets added to the Loan balance and is considered while calculating the broker commission amount.
Principal Remaining: If the fee is capitalized, there is no impact on the Principal Remaining.
Consolidated Balance: This is the same as the Loan Balance. In case of a capitalized fee, the charge amount is considered in the broker commission calculation.
Rounding of commission amounts in calculations
In the case of Commission Method = Percentage, the commission amount is rounded at the end of the calculation for that cycle.
For example, consider the following parameters:
Previous Commission Posting Date = March 1, 2023
Next Commission Posting Date = April 1, 2023
Payment Frequency = Monthly
Commission Calculated on = Loan Balance
If two payments are made in between the cycle on March 10 and March 18 respectively, then the commission amount from March 1 to March 10 is calculated without rounding and is carried forward in the commission amount calculated from March 10 to March 18 and similarly from March 18 to April 1. Once the cumulative broker commission amount is available, it gets rounded as per the configured values of Digits After Decimals and Rounding Method in the lending product. The broker transaction is then created for that rounded commission amount.
The Broker Transaction tab
After a broker commission is calculated, a Broker Transaction is created in the system. To see the broker transaction created, select theBroker Transaction tab in the CL Contract page of a loan contract.
The following image highlights a list of broker transactions created in the system:
The following image illustrates the details of a broker transaction created within the system:
This tab is visible by default. To control the visibility, see the User-Based Access to Tabs section of this guide.
You do not need to use the New Broker Transaction button that you see in the Broker Transaction tab as broker transactions are created automatically once a commission is calculated.
More information on fields on the Broker Transaction page
As highlighted in the preceding Broker Transaction image, there are the following fields:
Two flags: Payable and Paid.
Three fields: Adjusted Amount, Pending Adjustment Amount, and Transaction Amount
Let us understand how these fields are used with the help of following scenarios:
Scenario 1: Paid = true, Payable = false
Let us say today is October 1 and a backdated payment is made before today, then
Transaction Amount = $100 (This is the broker commission amount.)
New broker commission amount after backdated payment = $90
Then
Adjusted Amount = 0
Pending Adjustment Amount = -10
Transaction Amount = 100
Now let us move to November 1 and run the BrokerCommissionJob, then
Broker commission amount = $95
But since you have amount to be adjusted in previous transaction,
Transaction Amount = 95 - 10 (This is new broker commission amount.)
Adjusted Amount = -10
Pending Adjusted Amount = 0
Scenario 2: Paid = false, Payable = true
Let us say today is October 1, then
Transaction Amount = 100
New broker commission amount = 90
In this case
Adjusted amount = -10
Pending Adjusted amount = 0
Transaction Amount = 90
As part of the scope of this December2023 release, every broker transaction is payable, which means the system currently only supports scenarios with Payable = true.