Broker commission

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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.

  1. Let us say a Commission Plan is created with a Commission Item of the type Upfront associated with it.

  2. Create a contract with the following details:

    Field Value
    Loan Amount $10,000
    Interest Rate 10%
    Term 10
    Time Counting Method Month and Days

  3. 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

  4. 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.

Note:

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:

  1. The system picks up all the commission-able items for all contracts.

  2. 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.

  3. 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.

  4. 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.

  1. 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
    2. Note:

    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.

  2. 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

  3. Add Contract Party details with the following details for the Variance:

    Commission Method Variance
    Percentage 7.56
    Flat Amount 100

  4. Approve and disburse this loan.

  5. 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.

  6. Move the Current System Date to October 1, 2013.

  7. 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.

  8. 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.

  9. Move the Current System Date to November 1, 2013.

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.

Note:

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:

1. Create a contract with Trail commission item.

2. Move to the first commission posting date and run BrokerCommissionJob.

3. Move a few days ahead and make a backdated payment before the Previous Commission Posting Date

4. Run the BrokerCommissionJob again after payment is cleared.

5. 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

  1. 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

  2. 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

  3. Add Contract Party details by adding the broker commission plan with a Variance of 100 for Upfront, Trail, and Top-up.

  4. Disburse $55,000

  5. Move the Current System Date to October 1, 2013.

  6. Make a backdated payment for September 29, 2013 of $3,342.76.

  7. 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

  • Loan Balance gets updated to $51,757.24

  • LPT is created
October 2, 2013 Change of Current System Date that triggers the BrokerCommissionJob of the Start of Day Job Chaining

November 1, 2013

 Trail

  • The existing broker commission record is updated with a new value, which is $600.

  • Adjusted Amount = 0
Note:

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.

  1. 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

  2. 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

  3. Add Contract Party details by adding the broker commission plan with a Variance of 7.56 for Upfront, Trail, and Top-up.

  4. Disburse $55,000.

  5. Move the Current System Date to October 1, 2013.

  6. Make a backdated payment for September 29, 2013 of $3,342.76.

  7. 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.

  

  • Loan Balance gets updated to $51,757.24

  • LPT should be created
October 2, 2013 Change of Current System Date that triggers the BrokerCommissionJob of the Start of Day Job Chaining

November 1, 2013

 Trail

  • Broker commission gets recalculated from September 1 to October 1.

  • Existing Broker commission record is updated with new value.

  • New value =

    Broker commission on the original amount before payment for 28 days of September

    +

    Broker commission on the reduced amount after payment for remaining 2 days

    =

    [((55000+100)*(12.56+7.56)*28)/365000

    +

    ((55000+100-3342.76)*(12.56+7.56)*2)/365000]

    = $907.50

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:

Note:

  • 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.

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