Interest Posting Job to be an EOD Process
What does it mean to have an Interest Posting Job as an EOD process?
With the Platinum patch (3.6019.32) release, the Interest Posting Job is now a part of the EOD Job. This means that the interest is posted after calculating the interest on the closing balance of the outstanding principal at the end of the day in the EOD process.
Why is an Interest Posting Job required to be a part of EOD?
To enable the accounting and reporting of interest capitalization on the night of interest capitalization rather than waiting till the next day start of day process, the Interest Posting Job, which is responsible for executing capitalization of interest, is run a day before the actual IPT date, in the night or end of the day, so that the interest is posted on the same date and you do not have to wait for the next day for Interest Posting Transaction (IPT) creation and accounting.
For an EOD interest accrual type of loan, the Interest Posting Job is now part of the EOD process, and there are two ways in which the interest must be accrued for interest posting:
If today is the interest posting date, then the interest posted today includes interest accrued until the previous day only.
If today is the interest posting date, then the interest that is posted today includes the sum of the interest accrued till the previous day and the interest accrued for today (the posting date’s interest.)
To support these two scenarios, a new parameter called Accrual Type is introduced in the system at the product level as well as contract level that consists of the following two options:
What are the types of accrual used for interest posting and how to use those?
There are two types of accrual calculating methods for Daily Interest Accrual Time EOD:
Accrual To Date
When you select Accrual To Date, the interest amount posted on an interest posted date would be equal to the amount accrued until the previous date. This is the default behavior of SOD loans. If you select Accrual To Date on the contract, it would mean that the interest amount that would get posted on an interest posting date would be equal to the amount accrued till the previous date.
Example
In the following example, the interest amount that will be due on June 5 includes the interest accrued till June 4:
Following are the dates related to interest posting for Accrual To Date Accrual Type:
IPT Posting Date |
June 4 |
IPT Creation Date | June 4 |
IPT Due Date | June 5 |
Next IPT date |
July 5
Note:
This is determined by the frequency from June 5. For example, in the case of Monthly, it is July 5. |
LAD | June 5 |
Accrual Through Date
When you select Accrual Through Date, the interest of the interest posting date is included in the IPT. If you select Accrual Through Date on the contract, it would mean that that the interest amount that would get posted on an interest posting date would be equal to the amount accrued till that date.
Example
In the following example, the interest amount that will get posted and capitalized on June 5 includes the interest accrued till June 5 EOD:
Following are the dates related to interest posting for Accrual Through Date Accrual Type:
IPT Posting Date |
June 5 |
IPT Creation Date | June 5 |
IPT Due Date | June 5 |
Next IPT date |
July 5
Note:
This is determined by the frequency from June 5. For example, in the case of Monthly, it is July 5. |
LAD | June 6 |
How do we set the Accrual Type for an EOD loan?
Prerequisite
Before you try to set the Accrual Type, ensure that the following prerequisite is met:
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Specify EOD in the Custom Settings > Org Parameters > Daily Interest Accrual Time.
Note:If nothing is specified in the Daily Interest Accrual Time, then the default value is SOD, which is the normal scenario of interest accrual at the beginning of the day in the SOD process.
For more information on Org Parameters of the Custom Settings, see Defining Org Parameters section in the Q2 Loan Servicing Administration Guide.
Steps
To set the Accrual Type:
After creating a lending product, click Edit Additional Parameters.
In the End Of Day Parameters section, select the Accrual Type as Accrual To Date or Accrual Through Date based on the requirement.
OR
- While creating a loan contract, in the Additional Parameters > End Of Day Parameters section, select the Accrual Type as Accrual To Date or Accrual Through Date based on the requirement.
OR
After creating a contract, and before disbursing, click Edit Additional Parameters.
In the End Of Day Parameters section, select the Accrual Type as Accrual To Date or Accrual Through Date based on the requirement.
Though this setting is provided at the product level to get inherited by all loans by default, the system still allows you to override the behavior if needed at the contract level.
By default, the Accrual Type is set to Accrual To Date in the product, as most of the loan products work as per this method.
Once a loan is disbursed, the system does not allow you to change the Accrual Type.
In the Lending Product
In the Contract
How does Interest Posting Job as part of EOD impact Additional Interest Components (AIC)?
IPT creation is the same as regular interest posting because the same IPT job takes care of AIC too.
The Accrual Type is also used to identify the interest posting amount on the additional interest component:
For Accrual To Date: Additional Interest IPT is created a day before the actual IPT date on the interest component.
For Accrual Through Date: Additional Interest IPT is created on the actual IPT date on interest component along with the interest of that day.
Example: Accrual Type
Let us understand how the system behaves when Interest Posting Job is part of the EOD process with the help of an example using the following steps:
Let us say that the Current System Date is January 23, 2016.
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Let us create two contracts with the following terms and conditions:
Contract 1: Accrual To Date Contract 2: Accrual Through Date Loan Amount $10,000 Loan Amount $10,000 Interest Rate 12% Interest Rate 12% Time Counting Method Month and Days Time Counting Method Month and Days Is Interest Posting True Is Interest Posting True Interest Posting Frequency Monthly Interest Posting Frequency Monthly Is Capitalization Enabled True Is Capitalization Enabled True Payment Frequency Monthly Payment Frequency Monthly Payment Term 12 Payment Term 12 Accrual Type Accrual To Date Accrual Type Accrual Through Date Disbursement Transaction Amount $10,000 Transaction Amount $10,000 Next Due Date February 23, 2016 Next Due Date February 23, 2016 Next Interest Posting Date February 23, 2016 Next Interest Posting Date February 23, 2016 -
Move to the IPT Creation Date for Contract 1, February 22, 2016,
As soon as the system runs the InterestPostingJob at the end of the day of February 22, 2016, in the evening, an Interest Posting Transaction is created in the system as follows:
Note:Interest Posting Transaction is not yet created for Contract 2 with Accrual Through Date Accrual Type.
From the preceding images, we observe the following interest posting details:
Field Values Interest Posted $100
Note:Interest Posted = $10,000 * (12/100) * (30/360) = 100.
Transaction Due Date February 23, 2016 Transaction Posting Date February 22, 2016 Transaction Creation Date February 22, 2016 Capitalization Date February 22, 2016 The contract is updated with the following details:
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Move to the IPT Creation Date for Contract 2, February 23, 2016.
As soon as the system runs the InterestPostingJob at the end of the day of February 23, 2016, in the evening, an Interest Posting Transaction is created in the system as follows:
From the preceding images, we observe the following interest posting details of Contract 2 with Accrual Through Date:
Field Values Interest Posted $103.33
Note:Interest Posted = $10,000 * (12/100) * (31/360) = 103.33.
Transaction Due Date February 23, 2016 Transaction Posting Date February 23, 2016 Transaction Creation Date February 23, 2016 Capitalization Date February 23, 2016 The contract is updated with the following details:
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Check the details and Bill of Contract 1 with Accrual To Date.
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Check the Bill of Contract 2 with Accrual Through Date.
From the preceding images, we observe the following difference between the two loan contracts:
Contract1: Accrual To Date | Contract2: Accrual Through Date | ||
---|---|---|---|
Loan Balance | $10,100 | Loan Balance | $10,000 |
Last Accrual Date | February 22, 2016 | Last Accrual Date | February 23, 2016 |
Next Accrual Entry Date | January 31, 2016 | Next Accrual Entry Date | January 31, 2016 |
Interest Accrued | $0.00 | Interest Accrued | $96.67 |
Transaction Creation Date | February 22, 2016 | Transaction Creation Date | February 23, 2016 |
Transaction Posting Date | February 22, 2016 | Transaction Posting Date | February 23, 2016 |
Transaction Due Date | February 23, 2016 | Transaction Due Date | February 23, 2016 |
Example: Additional Interest Components
Let us understand how does the EOD accrual system impact the additional interest components with the help of the following self-explanatory tables:
Contract Start Date = January 1 | |
---|---|
Loan Amount | $10000 |
Interest | 10% |
Time Counting Method | Month & Days (30/360) |
IPT and Capitalization | Enabled |
IPT Frequency | Monthly |
Capitalization Frequency | Monthly |
Terms | 12 |
Additional Interest component | |
---|---|
Interest Bearing Principal | Available Amount For Funding |
Rate | 10% |
IPT Frequency | Monthly |
Capitalization | Enabled |
Accrual Type = Accrual To Date, Disbursement = $5000, Available Amount For Funding = $5000
Date | OpeningBalance | Current LAD | Closing Balance | IPT Created | Total IPT amount | Capitalized Interest Amount | Updated LAD | Next IPT date | Next Capitalization Date | AIC Posted | Total AIC Posted | Next AIC Date |
---|---|---|---|---|---|---|---|---|---|---|---|---|
January 1 | $5000 | January 1 | $5000 | 0 | 0 | 0 | January 1 | February 1 | February 1 | 0 | 0 | February 1 |
January 31 | $5000 | January 1 | $5041.66 | $41.66 | $41.66 | $41.66 | February 1 | March 1 | March 1 | $41.66 | $41.66 | March 1 |
February 1 | $5041.66 | February 1 | $5041.66 | 0 | $41.66 | $41.66 | February 1 | March 1 | March 1 | 0 | $41.66 | March 1 |
February 28 |
$10083.33 | February 1 | $10,161.75 | $39.00 | $80.66 | $80.66 | March 1 | April 1 | April 1 | $39.00 | $80.66 | April 1 |
March 1 | $100161.75 | March 1 | $10,161.75 | 0 | $161.75 | $161.75 | March 1 | April 1 | April 1 | 0 | $80.66 | April 1 |
March 31 |
$100161.75 | March 1 | $10246.43 | $42.66 | $122.99 | $122.99 | April 1 | May 1 | May 1 | $42.66 | $122.99 | May 1 |
Accrual Type = Accrual Through Date, Disbursement= 5000, Available amount for funding = 5000
Date | OpeningBalance | Current LAD | Closing Balance (after EOD job) | IPT Created | Total IPT Amount | Capitalized Interest Amount | Updated LAD | Next IPT date | Next capitalization Date | AIC Posted | Total AIC Posted | Next AIC Date |
---|---|---|---|---|---|---|---|---|---|---|---|---|
January 1 | $5000 | January 1 | $5000 | 0 | 0 | 0 | January 1 | February 1 | February 1 | 0 | 0 | February 1 |
February 1 |
$5000 | January 1 | $5043.05 | $43.05 (Interest from January 1 to March 31 + February 1) |
$43.05 | $43.05 | February 2 | March 1 | March 1 | $43.05 | $43.05 | March 1 |
March 1 |
$5043.05 | February 2 | $5083.64 | $40.62 (Interest from February 2 to February 28 + March 1) |
$83.64 | $83.64 | March 2 | April 1 | April 1 | $40.62 | $83.64 | April 1 |
April 1 |
$5083.64 | March 2 | $5126.00 | $42.36 (Interest from Mach 2 to March 31 + April 1) |
$126.00 | $126.00 | April 2 | May 1 | May 1 | $42.36 | $126.00 | May 1 |