Billing Situations

Product: The Agency Manager Series

This document includes many of the more unusual or complicated billing situations. Each billing situation includes a description of the situation, the steps necessary to process it properly, and the effects of the transactions on General Ledger.

In the samples below, the General Ledger account numbers represent the following:

Account
Number
Account Name
101 Cash Account (Operating or Premium Trust)
102 Transfer Account ("In and Out" Account)
110 Accounts Receivable
112 Agency Installment Account
200 Company Payable (200-AB, 200-CD, in the chart of accounts)
400 P & C Commission Income
401 Agency Fee Income Account
402 Direct Bill Commission Income
500 Broker Commission Expense
502 Expense Account for Agency's Own Insurance

Before using one of these billing situations, read the description thoroughly to make certain that it applies to your situation. When a PAY transaction is referred to in the billing situations below, it refers to a cash receipt from a client entered through the Cash Receipts program in the General Ledger.

T-accounts are also provided with each billing situation to show the effect of the transactions on the General Ledger.

Agency Billed Policy Paid to Company in Full, Billed in Installments

In this situation, the agency has an agency billed policy for which it must pay the company in full, but it wants to bill the policy to its customer in installments. The trick is to get the Account Current to show the full premium while billing the client in several installments. In reality, the agency is giving the customer a break by financing the premium for a time.

Example

The policy premium is $1000 at 15% commission. The insured pays $400 down, with an installment of $300 in 30 days, and another installment of $300 in 60 days.

To set up an account in Series 6, from the Home Base screen:

  1. Access Options.
  2. Select The Agency Manager for DOS.
  3. Select Utilities.
  4. Select System Setup.
  5. Select Accounting Setup.
  6. Select (1) Chart of Accounts Maintenance.
  7. Select (1) Enter/Revise Chart of Accounts.

To set up an account in Series 7, from the Home Base screen:

  1. Access Utilities.
  2. Select Accounting.
  3. Select Account Maintenance.
  4. Select Enter/Revise Chart of Accounts.

To set up an account in Series 6, from the Home Base screen:

  1. Access Options.
  2. Select The Agency Manager for DOS.
  3. Select Utilities.
  4. Select System Setup.
  5. Select Accounting Setup.
  6. Select (3) User Defined Transactions.

To set up an account in Series 7, from the Home Base screen:

  1. Access Utilities.
  2. Select Accounting.
  3. Select Receivables.
  4. Select User-Defined Transactions.

Enter the following transactions:

  1. NEW $1000 Invoices policy and updates Account Current.
  2. PAY $400 (Enter through Accounting- Receipts- Enter a Receipt) Reduces customer balance by the down payment.
  3. UDT JE# -$600 Reduces customer balance, does not affect Account Current.
  4. UDT JE# $300 With FUTURE date. Increases customer balance, does not affect the Account Current.
  5. UDT JE# $300 With FUTURE date. Increases customer balance, but does not affect the Account Current.
General Ledger Results
  

 

DEBIT CREDIT
              
FROM A/C 110 1000   
   200    850
   400    150
           
FROM PAY 101 400   
   110    400
           
FROM UDT 110    600
   112 600     
           
FROM UDT 110 300   
   112    300
           
FROM UDT 110 300   
   112    300
Agency Collects Premium on Direct Bill Policy, Charges Agency Fee, Retains Its Commission, and Remits Net Premium to Company

In this situation, the agency collects the premium on a direct bill policy for the company. The agency then charges an agency fee, retains its commission, and sends a net premium check to the insurance company.

Example

The policy premium is $500 at 15% commission with a $25 policy fee. The insured pays $525 and the agency advances $425 to the insurance company, while retaining $75 commission and $25 agency fee.

Set the policy up as direct bill.

Set up a user-defined transaction (UDT) as miscellaneous billed transaction that offsets to a direct bill commission account. If you don't have a separate direct bill commission income account, you may offset this to a general commission income account.

Enter the following actions:

  1. NEW $500 Increases direct bill balance.
  2. AFE $25 Increases agency bill balance.
  3. PAY $525 Decreases agency bill balance.
  4. ADV $425 (Enter through Accounting- Disbursements- Enter a Disbursement ) Increases agency bill balance.
  5. Enter disbursement to company as a direct bill advance
  6. UDT $75 Increases agency bill balance.
General Ledger Results
        DEBIT CREDIT
            
FROM AFE 110 25   
   401    25
           
FROM PAY 101 525   
   110    525
           
FROM ADV 101    425
   110 425   
           
FROM UDT 110 75   
   402    75
Down Payment Received on a Direct Bill Policy, Remaining Balance Financed by Outside Finance Company

Suppose the agency collects a down payment on a direct bill policy, forwards the total premium to the insurance company, and the difference between the down payment and the total premium is financed. The agency is then responsible for collecting the remaining balance from the finance company and remitting it to the insurance company. These steps outline how that situation should be handled.

Example

The policy premium is $1000. $800 is financed, and the insured remits a down payment of $200.

Set the policy up as direct bill.

Enter the following transactions:

  1. NEW $1000 Increases direct bill balance, but does not affect General Ledger
  2. PAY $200 Decreases agency bill balance
  3. ADV $1000 Increases agency bill balance
  4. FIN $800 Decreases agency bill balance; transfers outstanding balance amount to finance company's account

General Ledger Results

 

   DEBIT CREDIT
           
FROM PAY 101 200   
    110    200
           
FROM ADV 101    1000
   110 1000   
Returned Premium Check on Direct Bill Policy Made Payable to Agency

In this situation, the agency receives a return premium check from the insurance company on a direct bill policy. This check is made payable to the agency, so the agency must deposit this check and reissue it payable to the insured.

Example

A return premium check of $500 is made payable to the agency.

Enter the following transactions:

  1. Set up a user-defined transaction (UDT) as miscellaneous, offset to a Direct Bill Commission Income account (i.e., J/E#).
  2. Enter a Cash Receipt (type Other) for the insurance company's check. Offset the deposit to the Direct Bill Commission Account.
  3. Record a Cash Disbursement to the customer indicating that the check is a returned premium.
  4. At the customer level, enter the user-defined J/E transaction offset to Direct Bill Commission Income for a negative amount of money to reduce the insured's balance.

General Ledger Results

      DEBIT CREDIT
           
FROM PAY 101 500   
   402    500
           
FROM RET 101    500
   110 500   
           
FROM UDT 110    500
   402 500   
Policy Financed by Outside Finance Company, Customer Brings in Payment and Asks That It Be Forwarded to Finance Company

In this instance, a customer's policy is financed and he makes his payments directly to the finance company. He brings his check to your office and requests that you forward the payment to the finance company.

Example

A customer brings in check for $175 and asks you to forward it to the finance company.

Enter the following transactions:

  1. Enter a Customer Cash Receipt for $175.
  2. At the customer level, enter a FIN transaction for a negative amount, -$175 in this example, and apply the negative FIN to the cash receipt for $175. This transfers the credit balance from the customer account to the finance company's account.
  3. Enter a Finance Company disbursement for $175 indicating that the disbursement is for a return premium check.

General Ledger Results

      DEBIT CREDIT
           
FROM PAY 101 175   
   110    175
            
FROM RET 101    175
   110 175   
Advancing Premiums to Company for Multiple Clients on One Check

The agency is advancing premiums for several customers to one insurance company and would like to issue only one check to the insurance company.

Example

The agency is advancing premiums of $250 each for four clients. The agency wants to send one check to the insurance company for $ 1000.

Enter the following transactions:

  1. Define a Miscellaneous user-defined journal entry (J/E#) that offsets to transfer.
  2. Enter a Company disbursement for $1000 to the company indicating that it is a miscellaneous disbursement. Offset this disbursement to the transfer account.
  3. For each customer, enter a J/E# for $250 to create the balance for the advanced premium.

General Ledger Results

      DEBIT CREDIT
           
FROM CHECK 101    1000
   102 1000   
           
FROM UDT 110 1000   
   102    1000
On Financed Client Policy, Finance Company Sends Payment to Company Rather Than Agency

A client has financed the premium of a policy with a third party finance company, but the finance company makes a mistake and sends the payment directly to the insurance company rather than to the agency.

Example

There is an outstanding balance of $1000 on the finance company's account. Instead of sending the $1000 to the agency, the finance company sends it to the insurance company. The agency, therefore, needs to reflect a credit on their Account Current.

Enter the following transactions:

  1. At the Policy Screen of the financed customer policy, enter a CFE for a negative $1000.
  2. Enter a FIN transaction for a negative $1000, and apply the negative FIN invoice to the negative CFE invoice in the customer's account. This transfers a $1000 credit to the finance company's account, removing the balance.
  3. At the Finance Company level, create a journal entry between the negative FIN and the positive FIN invoices to apply them to one another.

General Ledger Results

      DEBIT CREDIT
           
FROM CFE 110    1000
   200 1000   
           
FROM FIN 110 1000   
   110    1000
Agency Receives Check for Client on a Credit Audit for Premium Less Agency Commission

The insurance company sends a check to the agency on a credit audit premium payable to the insured. The check is made out to the client for premium less the agency commission. The agency must forward the check to the client and must also cut an additional check to the insured for the agency commission on the returned premium.

Example

An audit premium on a policy results in a $100 credit audit for the customer on a policy with 10% agency commission. The insurance company sends the agency a check for $90 payable to the insured. The agency must issue a check for $10 (the return commission) and forward both checks to the insured.

Enter the following transactions:

  1. At the customer level, enter an AUD transaction for a negative $100.
  2. Enter a CFE transaction for $90, leaving the insured with a $10 credit balance.
  3. Issue a Cash Disbursement to the customer for $10 and indicate that the disbursement is for a return premium.

General Ledger Results

      DEBIT CREDIT
         
FROM AUD 110   100
   200 90  
  400 10  
        
FROM CFE 110 90  
  200   90
       
FROM RET 101   10
  110 10  
Financed Policy Is Canceled and Return Premium Must Be Sent to Finance Company

A client policy, financed by an outside finance company, is canceled. The Returned premium needs to be sent to the finance company rather than the insured.

Example

The policy has been canceled with a return premium of $150 at 10% commission. The returned premium must be sent to the finance company, since it financed the policy.

Enter the following transactions:

  1. At the Policy Billing Screen of the customer policy, enter a CAN transaction for $150. This transaction creates a credit balance for that amount on the customers account.
  2. Enter a FIN transaction for -$150, and apply the negative FIN against the CAN in the customers account. This transaction transfers the credit from the customer's account to the finance company's account.
  3. Issue a cash disbursement to the finance company; indicate that the disbursement is for a returned premium.

General Ledger Results

      DEBIT CREDIT
           
FROM CAN 110    150
   200 135   
   400 15   
           
FROM RET 101    150
   110 150   
Policy Is Partially Financed. Agency Receives a Down Payment on Item, Takes Out Agency Commission on Policy and Remits Net to Company. Agency also Sends Check to Company for Portion Being Financed.

In this situation, the agency must send net premium to the company with a customer's application for a policy being partially financed by an outside finance company. The insured sends a down payment to the agency on the item. The agency then cuts a check to the company for the client's down payment and issues a check (finance company draft) to the insurance company for the remainder of the premium. In a sense, the agency is financing the premium until the finance company remits its portion of the policy premium.

Example

The total policy premium is $1000 at 10% commission. The insured forwards a $200 down payment to the agency. The agency retains its commission of $100 on the policy and remits remainder to the insurance company. The agency also issues an $800 check (finance company draft) to the company on the remainder of the policy premium.

Enter the following transactions:

  1. In Customer Activity, enter a NEW for $1000 for the appropriate policy.
  2. Enter a FIN transaction for $800 at the Customer Policy Screen. This reduces the customers balance to $200.
  3. Enter a Receipt to the customer for $200 and apply the PAY to the outstanding balance of the NEW transaction.
  4. Issue a Company Cash Disbursement for $900 (premium less commission) with a payment type of Miscellaneous. Offset this check to the appropriate company payable account.
  5. When the check is received from the finance company, enter a receipt to the finance company.
General Ledger Results
      DEBIT CREDIT
             
FROM NEW 110 1000   
   200    900
   400    100
           
FROM CUSTOMER PAY 101 200   
   110    200
          
FROM CHECK 101    900
   200 900   
           
FROM FINCO PAY 101 800   
   110    800
Agency Receives Down Payment from Customer and Retains Commission. Net Down Payment Is Forwarded. Finance Company Finances Remainder of Policy Premium and Remits Directly to the Insurance Company.

In this example, the agency receives a down payment from the insured on a policy. From the down payment, the agency retains its commission and sends a check for net amount, down payment less agency commission on the policy, to the insurance company. The remainder of the premium is financed, but the finance company sends the balance to the insurance company rather than to the agency.

Example

The total policy premium is $1000 billed at 10% commission. The insured forwards a down payment of $200. The agency sends a check to the insurance company for $100 (down payment less total agency commission on policy). The finance company sends a check directly to the insurance company for $800.

Enter the following transactions:

  1. Enter a NEW transaction for $1000.
  2. Enter a CFN transaction for $800.
  3. Enter a Customer Cash Receipt for $200.
  4. Enter a Company Miscellaneous Cash Disbursement, payment type Miscellaneous, for $100. Offset this disbursement to the appropriate company payables account.
General Ledger Results
      DEBIT CREDIT
           
FROM NEW 110 1000   
   200    900
   400    100
           
FROM CFN 110    800
   200 800   
           
FROM PAY 101 200   
   110    200
           
FROM CHECK 101    100
   200 100   
Agency Receives Down Payment on Policy and Is Billed for Down Payment Less Total Policy Commission on Company's Account Current. Remainder of Policy Premium Is Billed to Agency and Client in Installments.

The agency collects the down payment on a policy and is billed for that amount less total commission on the policy on the company's Account Current. The remainder of the premium is billed by the company to the agency in installments on an account current basis. The agency bills the remainder to the client in installments as well. Commission has already been retained by the agency, so the installments should not be commissionable items.

Example

The annual policy premium is $1000 at 15% commission. The agency collects a down payment of $300, keeps its commission out of this down payment, and bills the remaining $750 in installments.

Enter the following transactions:

  1. Enter a NEW transaction for $1000 at 20% commission.
  2. Enter a Customer Cash Receipt for $300.
  3. Enter a CFE transaction for a negative $700 to reduce the customer's balance.
  4. Using the option to enter installments individually, enter 7 CFE transactions for $100 each to invoice the remaining $700 premium.
General Ledger Results
      DEBIT CREDIT
             
FROM NEW 110 1000   
   200    850
   400    150
           
FROM PAY 101 300   
   110    300
           
FROM CFE 110    700
   200 700   
           
FROM CFEs 110 700   
   200    700
Direct Bill Policy Cancels and Insurance Company Sends Net Check for Returned Premium to Agency. Agency Must Add Agency Commission on Returned Premium and Issue One Check to Client.

A direct bill policy is canceled and the insurance company sends a returned premium check to the agency for the returned premium less the agency's commission on the return. The agency must add its return commission and send one check to the insured.

Example

A personal automobile policy with a 10% agency commission is canceled with a return premium of $100. The insurance company sends the agency a check for $90; the agency must send the insured one check for $100.

Handle this situation in one of two ways, depending on whether you wish to track these transactions at the customer level or general ledger side only.

Tracking the Transactions at the Customer Level

Enter the following transactions:

  1. Set up a Miscellaneous user-defined transaction (UDT) that offsets to the direct bill commission income account.
  2. Enter the company's check as a Customer Cash Receipt for $90.
  3. At the customer policy screen, enter a UDT for a negative $10. The customer now has a $100 credit balance.
  4. Enter a Customer Cash Disbursement for $100 and indicate that the item is for a returned premium.
General Ledger Results
        DEBIT CREDIT
           
FROM COMPANY 101 90   

(PAY to CUSTOMER)

110    90
           
FROM UDT 110    10
   402 10   
           
FROM RET 101    100
   110 100   

Tracking on the General Ledger Side Only

Enter the following transactions:

  1. Enter a type Other cash receipt for the company's $90 check. Offset this receipt to the transfer account.
  2. Enter a Customer Cash Disbursement for $100 indicating that it is not a returned premium. Offset this disbursement in two steps: $90 against the transfer account and $10 offset to direct bill commission income.

General Ledger Results

       DEBIT CREDIT
           
FROM COMPANY 101 90   
   102    90
          
FROM CHECK 101    100
    110 90   
   402 10   
On Lienholder Billed Policy, Lienholder Payment Is Inadvertently Applied as a Customer Payment

A client has a Lienholder policy. The Lienholder pays the agency, but it is inadvertently applied as a customer payment rather than as a lienholder payment. Therefore, the customer account has a credit balance and the lienholder's account still shows a balance due.

The PAY on the customer has not been applied to a debit item, and has a full item balance.

  1. Enter a customer receipt for a negative amount. This appears as a positive (debit) amount on the customer.
  2. J/E between items on the customer, and apply the –PAY to the PAY. The customer will then have a zero balance.
  3. Enter a receipt to the finance company.
  4. This is all done on one receipt; the net is 0 so General Ledger is not affected.

The PAY on the customer has a zero transaction balance. 

Enter the following transactions:

  1. Set up a Miscellaneous UDT offset to Accounts Receivable.
  2. At the customer level, make sure that the Policy Billing Screen indicates that the policy is Lienholder bill and enter the UDT for the amount of the lienholder payment. This transfers the credit from the customer's account to the Lienholder's account.
  3. Change the bill mode on the Policy Billing Screen to Agency bill and enter another UDT for the amount of the lienholder payment. This offsets the credit in the client's account and reduces the client's balance back to its level prior to the inadvertent application of the lienholder payment. After doing the UDT, change the bill mode of the policy back to Lienholder bill.
  4. At the Lienholder level, do a Journal Entry Between Invoices to apply the credit to the debit.
  5. Or use the Cash receipt method above.
Agency Receives Payment from Finance Company on Both Agency and Direct Bill Items. Direct Bill Amount Must be Forwarded to Insurance Company.

The agency receives a check from the finance company that represents payment for both agency bill and direct bill items. The agency must forward the amount of the direct bill items to the insurance company.

Example

A finance company sends a check for $1000 for both agency and direct bill items to the agency. The agency must forward the amount of the payment on the direct bill items, $900, to the insurance company.

Enter the following transactions:

  1. Enter the Cash Receipt in two steps: a Finance Company Receipt for the amount of the agency bill items, in this case, $100, and a type Other Receipt for the total of the direct bill items, in this case, $900. Offset the Other Receipt to a transfer account.
  2. Enter a Company Cash disbursement for $900, the amount of the direct bill items, indicating that the disbursement is a miscellaneous payment type. Offset this disbursement to the transfer account.

General Ledger Results

      DEBIT CREDIT
           
DEPOSIT FROM FINCO 101 1000   
   110    100
   102    900
           
FROM CHECK 101    900
   102 900   
Financed Policy Is Canceled and Insurance Company Sends Return Premium Directly to Finance Company, Bypassing Agency. Agency Must Remit Commission on Return Premium to Finance Company.

A financed policy is canceled and the insurance company sends a net check directly to the finance company, bypassing the agency. The agency must then send a check for the commission on the return premium to the finance company.

Example

A net return premium check of $90 is sent directly to the finance company by the insurance company. The agency must forward a check for $10 commission on the return premium to the finance company.

Enter the following transactions:

  1. At the customer level, enter a CAN for $100.
  2. Enter a CFN for -$90.
  3. Enter a FIN for a negative $10 to transfer the credit from the customer level to the Finance company's account.
  4. Enter a Finance company disbursement for $10 and indicate the disbursement is for a returned premium.

General Ledger Results

      DEBIT CREDIT
           
FROM CAN 110    100
   200 90   
   400 10   
           
FROM CFN 110 90   
   200    90
           
FROM FINANCE CO RET 101    10
   110 10   
Policy Is Financed. Finance Company Sends Payments Directly to the Company. Customer Pays the Agency the Down Payment. Agency Retains Commission and Sends the Remainder to the Finance Company.

Example

The policy premium is $1000 at 10% commission. The insured pays $200 and the agency retains their commission of $100. Agency sends balance of payment ($100) to Finance Company.

Enter the following transactions:

  1. Set up the policy as agency bill and enter a NEW for $1000.
  2. Enter a customer cash receipt of $200 for the down payment.
  3. Enter a CFN for $900. This will leave the down payment less commission as a credit balance on the customer.
  4. Set up the Finance Company as a Insurance Company.
  5. Enter a Direct Bill Advance to the finance company (set up as a BCO) for $100. This will zero the customer balance.

General Ledger Results

      DEBIT CREDIT
                 
FROM NEW 110 1000   
   200      900
   400    100
           
FROM PAY 101 200   
(CUSTOMER DOWN PAYMENT) 110    200
           
FROM CFN 200 900   
   110    900
           
FROM ADV 110 100   
  101    100

Last Revised:  April 01, 2008 11:38 AM

SWE1966