Ideas for the Mambu App

Fee Amortisation using a daily EIR income recognition

What: a new amortisation method for disbursement fees for daily EIR income recognition (detailed calculations attached in an excel file).

From the accounting perspective, the debit and credit postings will be the same as for any fee amortisation, i.e.:

  • at disbursement: the loan portfolio is debited and a deferred income GL account is credited and

  • as the fee income is recognised: the deferred income GL account is debited and income is credited

However, the EIR calculations behind the daily amount of the fee income recognition should be done on a daily basis (as opposed to "On Due Dates" which is currently available with the EIR method).

Why: It’s a standard practise in trade finance, supply chain financing or invoice financing, which help companies using this type of financing to accelerate cash flows (also known as reverse-factoring).

The financial institution helps finance invoices (i.e. pay an invoice to the supplier on behalf of the buyer) and calculate a discount amount which represents their profit. E.g. the invoice = 97 and discount = 3. In this case, the financial institution will pay out 97 to the supplier, and expect to receive 100 from the buyer (3 representing the the discount of the face value).

The discount amount, however, cannot be recognised into income immediately but should be accruing through the life of the loan (this is typically a 1 installment loan due in X days). The accrual should be recognised daily using the EIR basis.

  • Dorota Nosal
  • Mar 21 2019
  • Planned
  • Attach files