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Late Charges in R12

By: Ranga Santhanam
AST Corporation

March 17, 2014

Applications Software Technology Corporation

1755 Park Street, Suite 100 | Naperville, Illinois 60563 | 1.888.278.0002 | www.astcorporation.com
Contents 
INTRODUCTION ...................................................................... 1 
THE BUSINESS CASE FOR LATE CHARGES ................................. 1 
INTRODUCTION OF LATE CHARGES INTO ORACLE EBS R12 ...... 1 
IMPLEMENTING LATE CHARGES IN R12 ................................... 1 
DEFINING AN ORGANIZATIONAL POLICY FOR LATE CHARGES2 
CONFIGURING LATE CHARGE DOCUMENTS ............................. 3 
DEFINING A TRANSACTION TYPE FOR LATE CHARGES .......... 3 
DEFINING A BATCH SOURCE .................................................. 3 
DEFINING A FINANCE CHARGE ACTIVITY............................... 4 
ENABLE LATE CHARGES FOR YOUR ORGANIZATION ............. 5 
DEFINING TIERS AND CHARGE SCHEDULES ........................... 5 
CONFIGURING LATE CHARGES IN CUSTOMER PROFILE CLASSES6 
IMPLEMENTING LATE CHARGES AT THE CUSTOMER LEVEL ...... 8 
ADDITIONAL CONFIGURATIONS FOR ENABLING/DISABLING LATE 
CHARGES ................................................................................ 9 
PROCESSING LATE CHARGE DOCUMENTS ................................ 9 
CONCLUSION ........................................................................ 10 

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Introduction 
While it is common for Customers to default or delay payments on their
invoices, it is not uncommon that organizations implement policies that
compensate the missing cash flows. Typical collection policies include
imposing a late charge or a penalty on the customer for being delinquent.
This paper will detail the configuration options that R12 offers an
organization to implement its late charges and penalty policies.
Throughout this paper, we will provide examples from an organization
successfully using this feature. The unique requirements of the
organization and how they were fulfilled will be cited to support the
validity of the solution.

The Business Case for Late Charges 
What happens to an organization having customers that miss due dates
on their payments? The situation gives rise to the problem of delayed
cash flow, and the accompanying issue of foregoing the interest that
would have accrued if the revenue had been timely realized.
Late charges are levied on customers, as a fine for overdue payments, or
payments made beyond the due date. This measure is designed to
encourage customers to stay on track with their payment obligations and
to cover any additional costs endured because of missed payments.

Introduction of Late Charges into 
Oracle EBS R12 
The Late Charge functionality in Receivables R12, replaces the Interest
Invoice feature available in Release 11i. While the 11i functionality of
Interest Invoices fulfilled the need, it lacked flexibility. R12 Late Charge
functionality gives organizations an opportunity to implement their
delinquency-related polices at a much more granular level. Late Charges
are applicable to past due debit items for each customer, account, or site.
Also, Oracle Receivables calculates Late Charges independent of
dunning and statements in Advanced Collections.

Implementing Late Charges in R12 
This part of the document details the steps required to implement the
Late Charges feature in Oracle Receivables R12.

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D EFINING AN  O RGANIZATIONAL  P OLICY FOR 
L ATE  C HARGES  
An organization must consider the following decision points to establish
their Late Charge policies:
1. Are all customers levied a penalty for missing their due date? Oracle
Receivables is flexible enough to implement the Late Charges at the
Customer level. Late Charges considerations are defined at the
Customer Profile Class level, allowing Organizations to choose the
type of customers that should be penalized.
2. Are all types of invoices eligible for late charges and penalty?
Again, Oracle Receivables is flexible enough to override the Late
Charges functionality at the Invoice Type level. This is ideal for
customers who have Late Charges enabled on their profiles but not
all types of invoices are eligible for late charges.
3. Should customers be paying a penalty for missing their due date and
making a late payment with or without a grace period and with or
without a tolerance amount for delinquency? If there is a grace
period allowed, is it the same for all customers or does it vary?
Similarly, if there is a minimum due tolerance, is it the same for all
customers or does it vary? Oracle Receivables can be configured to
suit each of these scenarios and this white paper will cover the
possible configurations.
4. What will be the organization’s optimal method of computing the
penalty amount that would cover the marginal costs that were
incurred due to the missed payment? Oracle Receivables offers three
(3) different ways of computing the interest: Simple, Compound and
Flat Rate.
5. Will the interest rates be charged at a Fixed Rate, a Fixed Amount, or
be based on a tier structure with interest rates dependent on the
duration of delinquency? Again, all three options are supported in
R12.
6. Will the interest be accrued daily or on a monthly basis?
7. As of which date will the late charges be computed? Oracle offers
the calculation to be based on the Run Date or the Due Date.
8. Will there be any interest calculation over and above the Late
Charges calculated?
9. Are the customers sent a new “Penalty Charges” invoice or are the
original invoices adjusted to include the penalty amount? Again, is
this policy across all customers or does it vary with different
customer types?
10. Oracle Receivables does prevent organizations from implementing
different methods of penalty computation for late charge invoices
and interest invoices. One customer’s requirement was to implement
a flat rate charges for overdue invoices, the late payments were

Late Charges in R12

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 penalized using a compound formula. This requirement required a
simple customization.

Configuring Late Charge Documents 

D EFINING A  T RANSACTION  T YPE FOR  L ATE 

C HARGES  
If your organization decides to create an invoice for penalty invoices,
then create a Transaction Type and a batch source for Late Charges
generated by the system.

D EFINING A  B ATCH  S OURCE

A Late Charges Batch Source needs to be defined, as a pre-requisite.
The Source Type should be set to “Imported”.

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D EFINING A  F INANCE  C HARGE  A CTIVITY  
If your Organization decides to adjust the overdue invoice, then create a
Receivable Activity of type Finance Charge/Late Charge.

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E NABLE  L ATE  C HARGES FOR YOUR 
O RGANIZATION  
The first step to enable Late Charges comes from enabling this feature in
the System Options. Enable Assess Late Charges and complete the
section as per your organization’s needs.

D EFINING  T IERS AND  C HARGE  S CHEDULES  

If the organization’s decision is to penalize based on the delinquency
duration, this configuration would support that. Just like aging buckets, a
multi-tier range must to be defined and then associated with different
rates and different durations.

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Having defined the Tiers, we need to associate the interest charge
amounts or percentages, to the tiers. This is achieved by defining a
Charge Schedule.

Configuring Late Charges in Customer 
Profile Classes 
The simplest way to start producing late charges would be to enable the
late charges in the Customer Profile. By doing this, the organization can
selectively include and exclude customers. If the organization’s policy is
to charge all customers a late charge, then all customer profiles would
have this feature enabled.

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The Enable Late Charges checkbox here works at the level of that
specific Profile Class. So, if there is a business need to define more than
one Late Charge Policy, such that each policy can be applied to a specific
set of customers, then the Profile Class serves as the tool to implement
that business requirement.

The Charge Calculation field is pivotal to determining the scope of Late

Charge calculation. Here, we have to choose, if Late Charges will be
based on the Average Daily Balance, or on Overdue Invoices, or on Late
Payments, or on both Overdue Invoices as well as Late Payments.
The Interest Calculation Formula has the option of Simple, Compound or
Flat. The Interest Calculation Period can be Daily or Monthly.

Finally, the Charge Schedule defined above, is attached to the Profile

Class. The configuration in the Interest Class region of the Profile Class
Amounts tab, impacts the Late Charge calculation. The configuration in
the Penalty Charge region of the Profile Class Amounts tab impacts the
calculation of the interest due on the Late Charge. Also, the Minimum
Charge Per Invoice should be set to a non-zero value.

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Implementing Late Charges at the 
Customer Level 
Like any other customer profile attribute, the late charges definition can
also be overwritten at the Customer level. The Enable Late Charges
checkbox here works for the specific customer. Hence by enabling this
box, we enable Late Charge Calculation for all transactions belonging to
this customer. Conversely, keeping this box unchecked would exclude
all transactions of this customer from the Late Charge calculation.

Also, in the above screen, we can selectively choose to have only Late
Payments or Overdue Invoices brought under the purview of Late
Charges. Here we see both as selected for Late Charge calculation. This
is the impact of applying the Profile Class with the same configuration to
the Customer.
The Charge Schedule is applied to the customer, through the application
of the Profile Class.

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Additional Configurations for 
Enabling/Disabling Late Charges 
To exclude a set of invoices from late charges, it can be disabled at the
Transaction Type level. Typically organizations do not accrue late
charges for Penalty Invoices.

And finally, an individual Invoice can be exempted from Late Charges.

Processing Late Charge Documents 
Oracle Receivables requires generation of late charges through
submission of the “Late Charges Generate” concurrent program.
Receivables agents can run this program in Draft mode and keep making
corrections until the list is finalized. Once the application identifies all
delinquent invoices per the configuration rules, it allows collection

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agents to browse through the customers and invoices that were included
as part of the run. Receivables agents are given more opportunities to
exclude and include invoices and customers before finalizing the batch.
They also have the flexibility of deleting the batch completely and
starting all over.

Late Charge Documents screen.

Conclusion 
Organizations can now leverage R12’s robust Late Charges functionality
to implement their collection policy for delinquent customers.

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Late Charges in R12
March 17, 2014

AST Corporation
1755 Park Street, Suite 100
Naperville, Illinois 60563

Phone: 888-278-0002
Fax: 630-778-1179
www.astcorporation.com

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