The intent of this document is provide the reader with a fundamental understanding of Oracle Loans, enriched with lessons learned from actual implementations. Matt Makowsky is an Oracle Financial Applications Consultant with 17 years experience and a Senior Solutions Architect with Perficient.
Oracle’s EBS Financials offerings include many “niche” products that are not considered “Core” applications by most consultants. Almost everyone implements General Ledger, Payables, Receivables, and Fixed Assets. But when asked about the more peripheral applications, such as Credit Management, Trade Management, Advanced Collections, or yes Oracle Loans, most consultants simply don’t have the experience. These are “add on” modules that usually come into play in more mature Oracle Implementations. None the less, these are the game changers. These are the modules that turn EBS Financials from a basic view of the database into a functional front end product that turns your cost center (billing invoices and applying receipts) into a profit center (collecting on past due debt, issuing loans, and eliminating undue credit risk).
This article will focus on Oracle Loans, because it integrates with almost all of the above mentioned products, more specifically, it integrates directly with Receivables, to generate the balance of the loans, Payables to disburse funds for the loans, Advanced Collections to collect on past due loans, and credit management to determine the eligibility of a borrower with the use of credit reports and credit scoring.
Oracle Loans provides dashboards to loan officers that display their customer portfolio by loan type and by currency. The loan officer can drill down and view credit scoring and collections information. The dashboard is basically a one-stop-shop for all of a loan officers needs. From the dashboard they can begin the creation of a new loan, create new borrowers, which Oracle integrates into Trading Community Architecture (TCA), where they are effectively treated as customers. The borrower (customer) may already exist. In fact, Oracle Loans can be used to turn existing receivables into long term loans with interest payments and other fees, all being recorded into General Ledger into the appropriate buckets as defined in each clients unique setup. Oracle Loans can fully automate the process based on configuration. A loan type can configured in such a way that it drives the entire process from beginning to end. Workflow Notifications can be defined to alert loan officers as much or as little as desired throughout the process.
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So how does it all work? From a configuration perspective, any EBS consultant who has experience in Payables and Receivables should be able to have the basics up and running within a couple of days, client specific requirements aside, for purposes of creating a good test environment and to help their client mold it to their business needs. Oracle seeds mostly everything you need. You can create new AR Transaction Types for recording Principle, Interest, and Fees, or you can use existing transaction types, providing they meet your requirements. All of the accounting is driven from configuration within Oracle Loans, and Subledger Accounting can be used to make further “customizations” as accounting is generated, if the application level defaults do not meet your needs or require some tweaking. What the consultant really needs to understand are the integration points, the accounting, and the overall workflow to generating a loan, from “origination” to “payoff”. A practical knowledge of how loans works in the real world will aide the consultant. If, for example, you’ve ever borrowed money for a car or a mortgage, than you probably already know most of the terminology, and can more quickly take customer requirements and convert them into configurations and a process which will give them the most efficient solution.
When you buy a car, typically speaking, you don’t walk out with a check. You drive out with a car. The only money that changes hands in this case is your down payment to the dealer. What has happened behind the scenes is the dealer (typically a franchise owner of a particular manufacturer) has actually received payment for the car from a selected finance company. The money moves from the finance company (minus the down payment) to the privately owned franchisee (car dealer). How would Oracle Loans work under this scenario?
The consultant would create “Direct Loan” configuration more specific to the auto industry. Perhaps giving the ability to record the collateral (in this case the new car), setting up standard interest rates that would be applied to a new or used car. The auto dealer would pass the information over to the finance company where they would open your application, run credit checks, create a “case folder” for credit review and approval. Upon approval of the loan and confirmed delivery of the vehicle to the borrower, and within a pre-defined time frame, the system will create a payment in Oracle Payables to the local dealer (third party), while generating the receivable (long term loan) to the actual borrower. Monthly invoices are then generated, the borrower pays down the loan, and Oracle Receivables records the cash, along with all of the appropriate journal entries to record the interest receivable/revenue and principle receivable from long term receivable as bills come due.
Other more simplistic functionality is available, to convert existing receivables into loans. The process is basically the same, however there is no need for a disbursement, because the borrower already has the funds. Oracle Loans will trigger the conversion of the invoices that are currently due into long term loans, and then monthly calculate the principle and interest, and all of the journal entries required to account for the movement of funds from short term to long term and vice versa as the loans come due.
All that is needed to make Oracle Loans a successful implementation is some real world experience (buying a house or a car) and successful implementations in Oracle Receivables, Payables, and General Ledger. The configurations in Oracle Loans are relatively small, require some knowledge in setting up “Resources” as Loan Administrators or Loan Agents. With this, the basics can be completed relatively quickly. Your client may have more advanced needs, such as interfacing applications in from third parties, downloading and importing credit reports with the use of credit management, creating scoring engines and automated approval rules. If you have experience implementing Credit Management (which is more common than Oracle Loans), then you have a huge leg up and will provide your client with better, more well rounded solution.