TrailMix: Contract balancing act. Part two

Oh No! “Remaining payments are not equal to Contract Balance Remaining.” (Part 2, read Part 1 here)

We would like to share some ideas for how to fix an out of balance contract and how to prevent one in the future.

Before you sit down to book a contract, it is always good practice to have a sign-off sheet that details the accounting entries that will be made in your general ledger. The form could include details like:

• Gross Contract
• Gross Finance
• Equipment Cost
• Specific codes you will track in your servicing system, like Region Code, Equipment Type, and Lessor
• It is good practice to include your pricing details and sign offs. It is important to set up checks and balances and approvals for all deal bookings.

Steps to fixing an “Out of Balance” contract

1. Search for out of balance contracts in your portfolio on a monthly basis; this should be part of your month-end reporting and analysis. See Part 1 for instructions.
2. Remember that Gross Contract minus Gross Finance always needs to equal Equipment Cost.
3. Review the Payment History screen and download to Excel to compare actual payments received in your bank and analyze to determine if correct.
   1. Sometimes contracts get out of balance because of messy payment reversals or disposition reversals, and it may be hard to accurately tell what happened; downloading the Payment History screen is an excellent way to analyze what payments remaining should be. Verify what payments were made by customer via bank account/lockbox data.
   2. Please note that a “Manual” payment type is system generated and is listed when you do a disposition or modify a charge. During a disposition, the system automatically adjusts the remaining open items and re-amortizes the contract, and backs off payments that no longer need to be made to amortize the contract to zero.
4. Take screenshots of Net Investment detail from the Contract Financials tab before you start balancing the contract. This will become your audit trail and any changes you make to any financial fields will also appear in the contract change log journals and reports.
5. Review the “Out of Balance” error message, “Remaining payments are not equal to Contract Balance Remaining.”
   1. Subtract the difference between the two and that is your out of balance amount.
   2. The out of balance amount is usually one payment amount or a partial payment amount.
6. Sometimes you will need to modify the Charges on the contract to get the contract in balance and represent what is due.
   1. Open the Charges tab, then open the Charge Number, by clicking on the blue hyperlink.
   2. Click “Edit” to either override the amount due OR “Add” a new Charge.
7. Once you think you have resolved the out of balance issue, continue through the process, by hitting “Enter.”
   1. One of the questions asked during “validation” is, “Do you wish to Recalculate the Gross Contract?”
      1. “Yes” means you will let the system recalculate because you fixed the Charges or Payments, but you didn’t override the Gross Contract field.
      2. “No” means you have overridden the Gross Contract yourself, on the Key Dates and Financials screen, and you do not want the system to recalculate.
      3. You will be asked to enter the Reason for the adjustment.
      4. You will be asked if you want to Save the changes.
   2. If you fixed the contract correctly, there will be no error message.
   3. If you are still getting an error message, exit out, do not save, and review all terms of the transaction.
      1. Sometimes you must add a Charge amount.
      2. Sometimes you must modify a Charge amount due.
      3. Sometimes you must change the payment from Advance to Arrears if your due date is different than your commencement date.
      4. Remember to review your pricing, i.e., TValue.
   4. As you work through resolving your issue, remember that your user ID will be on record for audit validations and security reporting.
8. If you are utilizing the Floating Rate module, and have to do an Extension or Restructure, remember to include the CTD Floating Rate Adjustment in your calculations.
   1. The CTD Floating Rate Adjustment is the difference between: the interest rate entered in the Floating Rate screen and the interest calculated by your portfolio system. This is usually a minimal amount and caused by the difference between 30/360 and the daily sensitivity of the Floating Rate module.
   2. Remember that you also must balance a contract extension or a restructure.

The Contract example in Part 1 is out of balance by $6 because:

• The payment amount of $221.60 times 60 = $13,266
• The Gross Contract amount was entered as $13,260; a difference of $6

To balance this contract, all you need to do is change Gross Contract to $13,266 OR modify the payment amount to $261. If you modify the payment amount, make sure to modify the open charge, by $6, if it was already invoiced.

Contact Tamarack for additional information on how to balance a contract at discover@tamarack.ai