U04 End of Period

U0440 Automatic Charge Off

For more information about End of Period,
refer to U04 End of Period Overview.

Sequential Updates: This EOP module runs as part of U0411 Sequential Updates. Its status does not appear separately on U0402 Status Review, but is reflected in the status of U0411 Sequential Updates.

This EOP process requires the Auto Charge Off optional license module.

• General Ledger Transactions
• Automated Charge Off Report
• Automated Charge Off Deferral Report
• Automated Charge Off Forecasting Report
• Auto Charge Off Exceptions Report

This update is used to terminate delinquent leases automatically through an End Of Month process. If the AUTO CHARGE OFF switch for a lease at time of charge off is set with a value of 0 - 9, this switch will be updated to Y. For more information on the AUTO CHARGE OFF switch, refer to the documentation in U0101 Book Lease update and U0202 Master Financial update.

Interest bearing loans, all operating leases, Vertex O leases, and leases with non-accrual (Hxxx) statuses may not be charged off.

Auto Charge off will not charge off leases with a charge off amount that exceeds the Payoff Shortage amount in U0212 Portfolio→Payoff Customizations. Example: If the maximum Payoff Shortage is $50,000 and the charge off amount i s $100,000, then the following message will be seen in the EOP Auto Charge off Exception Report, 'Insufficient Funds for Termination'.

Four reports will be generated:

• U0440A Automated Charge Off report.
  This report lists leases that were charged off automatically or those leases that had a status of suspended (NHLD) and were manually terminated using U0103 Payoff during the current month.

  This report will display the IDC/IDR totals when the Enhanced IDC/IDR module is purchased.

  U0440 also supports dealer bonus field. U0440 processes the dealer amount in same manner as it does in U0103 Payoff. For details, see Payoff - U0103.

  Update U0440 Automatic Charge Off also supports for dealer reserve fields. To support dealer reserve U0440 first checks that there are no outstanding dealer reserve payables before processing the charge off. The update will than check and identify that if a chargeback should occur. If chargeback should occur than up to what limit it should occur. The chargeback will only occur when it is required. Chargeback will only process once U0440 confirms that chargeback should occur. U0440 processes the dealer reserve in the same manner as it does in update U0103 Payoff. For details, see update U0103 Payoff.

• U0440B Automated Charge Off Deferral report.
  This report lists leases that were more than 121 days delinquent, but the AUTO CHARGE OFF field in the Lease (RLS) file contains a deferral code. After the deferral period is completed the lease's AUTO CHARGE OFF field in the Lease file (RLS) will be reset to Y.
  
  
• U0440C Automated Charge Off Forecasting report. This report lists leases that are between 90 and 120 days delinquent.
  
  
• U0440D Exception report. This report provides information about leases on which a charge off could not be processed.
  
  

  Vertex O users: If Vertex O (Y/N) switch is set to Y and the lease is subject to automatic charge off, LeasePak will process the automatic charge off but the sales and use tax tied to lease payments will not be waived. Therefore, the Vertex O calculated invoices that have sales tax on the lease rental amount would not get the sales tax waived. If the lease being charged off has sales and use tax tied to outstanding recurring charges or assessments, then the sales and use tax tied to the additional charges will be waived as recurring charge assessment is waived.

In order for the lease to be automatically charged off, the lease must be delinquent, and the AUTO CHARGE OFF switch must be set to Y (standard charge off).

In addition, the Auto Charge Off will account for payoffs at a loss. Therefore, the user has to SHORT PAYOFFS ACCEPTED in the Payoff Customization option of U0212 Portfolio, and the Maximum Shortage amount should be chosen appropriately.

If the Sales Tax on Assessment module is purchased, sales tax that was billed but unpaid will be reversed before the lease associated with the asset is charged off. This will occur only if Sales/Use Tax is accounted for on a cash basis.

The Auto Charge Off process uses the INV lease termination method. For more information on this method refer to Payoff Methods section of the Calculations document. The accrued to date of the lease will be used as the effective date of the charge off and the FMV will be set to zero. The total Charge Off Shortage will be calculated as follows:

BOOK VALUE
+ PAYMENT OUTSTANDING
+ ASSESSMENT OUTSTANDING
+ ANY ADDITIONAL INTEREST
+ ANY FEES/PENALTIES CHARGED TO THE LESSEE
= TOTAL CHARGE OFF SHORTAGE

General Ledger Transactions

As described in the Calculations document, the INV payoff/termination method is materially affected by the portfolio level switch TAKE INCOME ON 'INV' PAYOFF OF SUSPENDED LEASE (Y/N). When this switch is set to Y the following transactions occur:

For precomputed interest leases, clear the remaining contract receivable, unguaranteed residual, and lessor, vendor, investor, and book IDC unearned. There is a remaining contract receivable and unearned only if the lease is terminated before maturity.

LeasePak allows this update to identify the subvention income on remaining subvention unearned balances if any, related to the records of subvention general ledger accounts. If the balance found in the general ledger accounts, LeasePak will reduce the balance and set it to zero with debit general ledger entry to their respective subvention unearned general ledger account. The offset will be a credit to their respective subvention income general ledger account.

LeasePak also maintains general ledger transactions by Automatic Charge Off for the every set/record of the subvention income to clear any suspended income accrued for the lease.

If the lease is in suspended earnings status, the transaction to Contract Receivable is reduced by the amount of Suspended Income Collected and additional transactions occur to recognize the suspended income accrued/ collected.

When the TAKE INCOME ON 'INV' PAYOFF OF SUSPENDED LEASE (Y/N) switch on U0212 Payoff Customizations is set to N and the lease is suspended the following transactions occur:

For precomputed interest leases, clear the remaining contract receivable, unguaranteed residual, lessor, vendor, investor, and book IDC unearned, suspended income accrued, and suspended IDC accrued. There is a remaining contract receivable and unearned only if the lease is terminated before maturity.

If the lease is in suspended earnings status, the transaction to Contract Receivable is reduced by the amount of Suspended Income Collected and additional transactions occur to recognize the suspended income accrued/collected.

For simple interest leases, clear the principal outstanding and the residual accounts. There is a principal outstanding only if the asset to lease is terminated before maturity.

For precomputed interest leases and simple interest leases the net debit/ credit balance in Clearing will be offset against Allowance for Bad Debt. A lease is considered delinquent under the standard charge off process (i.e. AUTO CHARGE OFF is set to Y) if the following two rules apply:

• 10% rule - The unpaid rental payment of the oldest delinquent invoice is greater than 10% of the rental payment billed. The following example illustrates a lease falling into the 10% rule. The unpaid portion of rental payment is $101.00, which is > 10% of the rental payment ($1,000).

  Invoice 1 Rental payment= $1,000.00
  Late charge= 25.00
  Rental payment paid = 899.00
  Unpaid portion of rental payment = $ 101.00

• The lease is delinquent for at least 121 days.
  The 121 days delinquency period is based on the elapsed time between the date of the oldest outstanding invoice whose payment is within the 10% rule, and today's system date. For example, lease 1 is set up to be automatically charged off and has 3 outstanding invoices with payment due dates on Jan. 15, Feb. 15, and April 15. Lease 1 will be automatically charged off on May 16:
  
  

  Month	Days
  January 16-31	16
  February	28
  March	31
  April	30
  May 1-16	16
  Total	121

A lease is considered delinquent under the deferred charge off process (i.e., AUTO CHARGE OFF is set to 0 - 9) if the following two rules apply:

• The lease must be delinquent under the standard charge off rules.
  
  
• The system date must be past the end of the month in which the lease qualified for auto charge off under the standard charge off rules. For example, the lease in the previous example would not be considered delinquent under the deferred charge off method until June 1st.

AUTO CHARGE OFF deferral codes are maintained using U0722 Custom Codes, category ACO.DFRL. Only single digits 0 through 9 and A through Z are allowed, even though it is a 4 character field.

The following general ledger transaction will be produced for IDC ASC 842 when a lease becomes suspended:

The following general ledger transaction will be produced for IDC ASC 842 when "Prorate Inc IDC/IDR (Y/N)" is set to Y from U0212 Portfolio→Miscellaneous Customizations.

The general ledger transactions reflects the current book IDC accounting as it does today when book IDC accounting method is set to AMOR or AMR2.

U0440A Automated Charge Off Report

U0440A Automated Charge Off reports delinquent leases that have been written off to bad debt or leases that had a value of NHLD and were terminated using the Termination option of U0103 Payoff during the month.

• LEASE
  The lease number of the charged off lease is displayed.
  
  
• LESSEE NUMBER
  
  
• LESSEE NAME
  
  
• LEASE DESCRIPTION
  
  
• DAYS DELINQUENT
  The number of days the lease has been delinquent.
  
  
• CHARGE OFF AMOUNT
  The portion of the Charge Off amount that was posted to Bad Debt is displayed. Bad Debt is calculated as:

  TOTAL CHARGE OFF SHORTAGE - SECURITY DEPOSIT

• CHARGE OFF CODE
  The value of the Auto Charge Off field, after processing, in the Lease (RLS) file, C if the lease was charged off automatically or M if the lease was terminated using U0103 Payoff.
  
  
• COLLECTOR
  If the Collections module has been purchased, this column contains the name of the collector assigned to the lessee. If a collector has not been assigned, the field will be "Not Found". If the Collections module has not been purchased, then this field will contain "Not Found."

U0440B Automated Charge Off Deferral Report

U0440B Automated Charge Off Deferral reports leases for which charge off has been deferred because the Auto Charge Off field has a valid deferral code.

• LEASE
  The lease number of the projected charged off lease is displayed.
  
  
• LESSEE NUMBER
  
  
• LESSEE NAME
  
  
• LEASE DESCRIPTION
  
  
• DAYS DELINQUENT
  The number of days the lease has been delinquent.
  
  
• PROJECTED CHARGE OFF AMOUNT
  The portion of the Charge Off amount that will be posted to Bad Debt, if the lease continues its delinquency. The Projected Charge Off Amount is calculated as:

  TOTAL CHARGE OFF SHORTAGE - SECURITY DEPOSIT

• COLLECTOR
  If the Collections module has been purchased this column contains the name of the collector assigned to the lessee. If a collector has not been assigned, the field will be "Not Found." If the Collections module has not been purchased, this field will contain "Not Found."
  
  
• REASON FOR DEFERRAL
  This field will contain a text translation for the Auto Charge Off field deferral code, as established in U0722 Custom Code.

U0440C Automated Charge Off Forecasting Report

U0440C Automated Charge Off Forecasting reports leases that are between 90 and 120 days delinquent.

• LEASE
  The lease number of the projected charged off lease that is displayed.
  
  
• LESSEE NUMBER
  
  
• LESSEE NAME
  
  
• LEASE DESCRIPTION
  
  
• DAYS DELINQUENT
  The number of days the lease has been delinquent.
  
  
• PROJECTED CHARGE OFF AMOUNT
  The portion of the Charge Off amount that will be posted to Bad Debt, if the lease continues it's delinquency, is displayed. The Projected Charge Off Amount is calculated as:

  TOTAL CHARGE OFF SHORTAGE - SECURITY DEPOSIT

• COLLECTOR
  If the Collections module has been purchased then this will contain the name of the collector assigned to the lessee of this lease, if a collector has not been assigned to the lessee then the value of the field will be "Not Found." If the Collections module has not been purchased then this field will contain "Not Found."

U0440D Auto Charge Off Exceptions Report

U0440D Auto Charge Off Exceptions provides the following information:

• LEASE
  
  
• LESSEE NAME
  
  
• ERROR MESSAGE
  The reason for not processing the lease is displayed.