How QuickBooks Helps Micro Lenders to Track Expected Cash Flows

QuickBooks for Micro Lending Business or Credit Finance

A microlending or credit finance company is a business that provides quick personal or business loan to its customers, and in return earns interest on the loan. This type of business requires proper documentation of the names of customers, loan disbursed (on a daily, weekly and monthly basis), payback period and the expected interest return.

While Excel seems to be popular among microcredit finance Company, especially in the area of calculating the interest receivable on loans, QuickBooks financial software lets you keep a proper record of your reports by showing customers and loan receivable balance, interest income, profit or loss, balance and cash flow statement.

As of this update, we are currently deploying QuickBooks accounting in a fast growing consumer loan and credit finance company, so it is usual for us to share brief details about the projects and how we have successfully set opening balances for onward transaction entries.

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For over 5 years, we have implemented QuickBooks for several companies under Retail, Manufacturing, Oil & Gas, Real Estate & Construction, Travels, Hospitality,Legal, Co-operatives, NGOs, Financial & Service Sectors.
  • Mbaire Services Nigeria Ltd(Construction)
  • Chisco Transport Limited(Transport)
  • Lounge38(Hotel and Bars)
  • CTRL System Technologies Limited(Procurements)
  • Aristokrat 360 Limited(Creative & Media Agency)
  • Alpha Pharmacy (Health Care & Supermarket)
  • Ericsson Nigeria Multipurpose Co-operative Society (Co-operatives)
  • Fastanet Limited (ICT and Security)
  • Britanic Maritime (Maritime Service)
  • CEO Business Limited (Salary Advance, Credit Finance and Loan)
  • OneHealth Pharmacy (Health Care)
  • Olpharm Pharmacy (Health Care & Distributor)
  • Hawkes Legal(Legal)
  • Kantessa Limited(Fashion Store)
  • OPI Nigeria International Limited (Oil & Gas Servicing)
  • Zenilum Company Limited (Oil & Gas Servicing)
  • Lilygate Hotel(Hospitality)
  • Benstel Nigeria Limited(Bottle Water Production & Distribution)
  • Paraclete Nigeria Limited (Bottle Water Production & Distribution)
  • Josien Holdings Limited(Distribution)
  • Aisha Buhari Foundation (Futured Assured)(NGO)
  • Doheney HR Services(HR)
  • Insights Limited(Health Consultant)
  • Biddel Oil & Gas Limited (Oil & Gas)
  • System Intelligenz Limited(Contractor)
  • MagTech Information Security (IT)
  • Infusion Cakes Nigeria (Bakery)
  • Landmark Centre (Event Centre)
  • M.D School (Private School)
  • Travel Options (Travels)
  • Logos Travel Support & Solutions Ltd (Travels)
  • Germaine Auto Centre (Autos)
  • Starlight Nigeria (Retail)
  • Temple Private School (Education)
  • Value Mart Supermarket (Retail)
  • Transweb Bureau De Change (Financial Service)
  • Vektro Food Limited (Manufacturing & Retails)
  • Orient Petroleum PLC (Oil & Gas)
  • Plus More

Customers and Loan Balances

Before the commencement of the project, we sent a mail requesting for the list of all customers and their loan balances. The balances were posted to the loan receivable balances so you can easily track the expected cash flow from your customers and follow up on overdue balances.

For clients with over 100 customer base, the import section of QuickBooks makes it easier to quickly migrate the customers with the value that is expected from them as at a selected closing balance date.

Loan Product

As a credit finance or loan lending company, it is normal for you to have various loan products that cater for different needs. For instance, Asset Loan is a form of financing that targets consumers looking to acquiring assets like cars or loan, while Salary Advance loans may be targeted at working-class customers who need an emergency personal loan with payback period tied to payday.

QuickBooks lets you add your various loan products and their respective interest rates/return so you can track the top performing.

Banks

Cash flow from loan disbursement or repayments can either be cash, cheque or direct transfer to the bank. You will agree with us that your bank account is the custodian of all your cash and such should be properly set up in QuickBooks to track all credit finance and receipts, because at the end of the fiscal year, you will be expected to reconcile your bank balances which are the ultimate test of the accuracy of your entries in an accounting software.

Beyond your local currency, QuickBooks provides for multi-currency transactions – a feature that allows you to track foreign loan disbursement to internal clients or customers at a specific exchange rate.

Transactions

The “invoice” section of QuickBooks can be customized to record loan disbursement and expected interest income on the loan.

Interestingly, QuickBooks calculates interest on a loan based on pre-defined percentage so you can see what is receivable on a loan.  This is based on simple interest.

 

Some important features available are the customer’s name, address, terms of payment which covers the payback period, and even your business location if you have different branches.

Amortization of Interest Return

QuickBooks allows you to amortize your interest repayments so you can recognise the portion of the total interest earned on a monthly basis, depending on the payback period.

The “receive payment” window lets you record loan repayments from your customers against the actual balances due as well as the bank/cash account the money was paid into.

On default loan or irrecoverable debts, you can use the “write off” feature on the receive payment window to clear loan that has been overdue with no substantial evidence that it can be recovered.

Cost of Fund

You may overestimate or report an unrealistic profit figure if you don’t factor the cost of equity and debt as a loan lending company. The former lets you look at the opportunity cost of injecting additional funds into your business for the purpose of credit financing which is usually your forgone interest from risk-free securities, charged at an average of 1-2% per month on loan disbursement. The latter on the other hand considers the annual/monthly interest rate payable to your creditors.

Either way, you look at it, they should be treated as “cost of funds“, popularly known as the direct cost of a loan, which should be deducted from your interest income to ascertain the actual gain or loss.

In QuickBooks, you can amortize your cost of funds against deferred expenses account while you write-off the interest payable from your bank/cash account.

Financials

As a loan lending or credit finance company, reporting is the most important part of your accounting system. This is because, without it, you cannot track and follow up on customers whose loan are already due.

Account Receivable:  This report lets you view all customers and how much is receivable from them.

Ageing Summary: This report allows you to check loan that are due in a specified number of days based on their terms of payment.

Also, a financial report like the interest income report, shows your actual returns from the loan disbursement, while profit or loss tells more about your continuity, based on your gains or loss after accounting for business expenses.

QuickBooks Version

QuickBooks offers the cloud or desktop version and both of them are good for credit finance or loan lending companies. However you choice out of the two depends on your budget and preference for accessibility.

If you need more guidance on how QuickBooks works for a loan lending or consumer credit finance company, connect with us at

 

info@accountingsoftware.com.ng

bigresourcessolutions@gmail.com

+234 810 5090 001, +234 808 4219 399

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