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Loan Management with ERPNext

Loan Management with ERPNext - Simplify Your Loan Processes

ERPNext is a widely used open-source cloud-based ERP software that offers various functionalities for managing different aspects of a business. One of its modules is the Loan Management module, which helps organizations efficiently manage their loan portfolios.

With this module, businesses can create and manage loan accounts, track repayments, and generate reports on loan performance. It allows users to create loans with different interest rates, repayment lengths, and payment schedules.

The Loan Management module in ERPNext provides features for managing loan types, loan applications, loan approvals, pledge and unpledged security management, disbursement, loan repayment, interest and penalty calculations, and more. It also allows users to configure loan processing workflows, automate loan approval processes, and integrate with third-party payment gateways.

1. Loan Type

To create a loan type, users can navigate to Home > Loan > Loan type > Add Loan Type. Specify the loan name, maximum loan amount, rate of interest, penalty rate of interest, auto write-off amount, and account details.

Loan Type

“Is Term Loans and Demand Loans” 

This feature allows you to define if the loan type Is Term Loan or demand loan. If checked, specify the Loan as Term Loan and if this is unchecked any loan of this type will be considered as a demand loan and an automatic repayment schedule won't be generated for that loan as the Demand Loans are open-ended loans which do not have a fixed repayment schedule or a fixed repayment amount.

2. ​Loan Security Type

Add the type of security which will be accepted as the collateral against which the secured loan can be given. In Loan Security Type master you can define that type of security.

 The Loan security Type contains detail about:

a. Loan Security Type 

b. ​Unit of measure Unit of measure 

Loan Security Type

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3. Loan Security Types

Loan security types can be added to define the types of collateral accepted for secured loans. Users can go to Home > Loan > Loan Security List and click on "New" to add a loan security.

They need to provide the loan security name, loan security type, haircut (which represents the reduction in the value of the pledged asset or the percentage difference between market value of the Loan Security and the value ascribed to that asset when used as collateral for that loan.), and unit of measure (UOM). Then they can save the details.

Loan Security Type

4. Loan Security Price

Loan security prices can be set to determine the collateral value of the security. Users can go to Loan Security Price and click on "Add Loan Security Price." They need to select the loan security, enter the loan security price, specify the valid from and valid up to timestamps, and save the information.

Loan Security Price

5. Loan Application

The loan application is the initial step where clients or applicants apply for a loan. In the Loan Management module, users can navigate to Home > Loan > Loan Applicant > Add Loan Application to create a loan application.

They can provide details such as applicant type, application name, company, posting date, status, loan type, loan amount, term loan or secured loan, rate of interest, reason, loan security details (if applicable), and repayment information. After saving the application, they can either save it as a draft or submit it.

Loan Application

6. Loan 

Loan records are created when loan applications are approved and it contains all the information regarding a loan. These records serve as loan accounts and contain information about the borrower, repayment plan, and payment history. Users can view and manage loan records by navigating to the Loans section.

Steps to create Loan are:

➥ Go to Loan List, click on New.

➥ Select Applicant Type.

➥ Select the Applicant.

➥ Select Loan Application if Loan Application is created against that Applicant. All the details in loan application will be automatically fetched in the Loan record.

➥ Select a Company.

➥ Enter the posting date.

➥ For applicant type “Employee” we can check "Repay from Salary" if loan will be repaid from salary.

➥ Enter Loan Type. All the loan accounts, mode of payment and other loan details like whether the loan is a term loan or demand loan will be automatically fetched from the loan type master. In case of a term loan repayment schedule will be auto generated on saving the loan document.

➥ Check 'Is Secured Loan' if the loan is a secured loan. Also select 'Loan Security Pledge' if the loan is a secured loan.


7. Loan Security Pledge

Loan security pledge is the process of taking an asset as collateral against a loan. After the loan application is approved, users can create a loan security pledge by navigating to Loan Application > Edit > Create > Security Pledge.

They need to provide details such as applicant type, company, applicant, status, loan application, loan security details, quantity, loan security price, amount, and total security value.

Loan Security Pledge

8. Loan Disbursement

Loan disbursement involves transferring the loan amount to the borrower's account. Loan disbursement entry is created once the Loan is sanctioned and amount is ready to be disbursed to the applicant.

To perform a loan disbursement, users can go to Loans > Loan Disbursement and select the loan against which they want to disburse the amount. They need to provide details such as company, applicant type, applicant, disbursement details (date, amount, accounting dimension, etc.), and disbursement reference. Then they can save the disbursement entry.

Loan Disbursement

9. Loan Interest Accrual

Loan interest accrual is the process of updating the accrued interest for a loan. Loan Interest will be accrued monthly on the first day of every month for demand loans and one day before payment day for term loans.

Users can create a process loan interest accrual record to post interest accruals on a specific date. They can navigate to Loans > Loan Process > Process Loan Interest Accrual and provide details such as posting date, loan type, and loan. After saving or submitting the record, the loan interest accrual is automatically created.

10. Loan Repaym​ent

Loan Repayment refers to the process of returning borrowed money to a lender, typically through regular installment payments. After the loan has been disbursed, the next step is to collect the repayment amount, which can be done through Equated Monthly Installments (EMIs) based on the chosen repayment plan.

To complete the loan repayment process, follow these steps:

● Go to Home > Loans > Loan Repayment > Add Loan Repayment.

● Select the loan for which you are receiving the payment.The Applicant Type and Applicant will be fetched from the Loan.

● Fill in the payment details, including the amount paid.

● Specify the accounting dimensions and cost center.

● Enter payment references such as reference number and date.

● Provide accounting details, including the repayment account and loan account.

● Click "Save" to save the draft of the loan repayment entry.

● Click "Submit" to submit the loan repayment entry.

Loan Repayment

11. Loan Write- Off

Loan Write-off is a process used to clear the outstanding principal amount of a loan when it becomes a bad debt or a non-performing asset. It involves closing the loan and considering the remaining amount as written off.

To write off a loan, follow these steps:

➣ Navigate to Home > Loans > Disbursement & Repayment > Loan Write-off.

➣ Click on "New" in the loan write-off list.

➣ Select the loan for which you want to write off the principal amount.

➣ Specify the company

➣ The applicant type is automatically fetched based on the loan number.

➣ Enter the posting date.

➣ The applicant is automatically fetched based on the loan number.

➣ Specify the account dimension and cost center.

➣ Provide write-off details, including the account to write off and the write-off amount.

Loan Write Off
Loan Security Unpledged
Are you ready to move towards financial freedom? Are you ready to take control of your Loan Repayment journey?

Follow the step-by-step instructions given by Kanak Infosystems LLP. today and successfully manage your loan repayments, write off outstanding amounts, and unpledge loan securities with ERPNext now!

Book a Free Consultation with us now and get all your answers about ERPNext!

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