LoanPro’s charge-off feature can be set up to run automatically or manually via an agent. This article explains how to set up a charge-off and gives a brief explanation of recovery payments and charge-off accounting. 

How to charge off an account

To charge off a loan, 

1. Log a payment for the amount you are charging off. If you are completely closing a loan, you will usually log a payoff payment.
2. Once the payment is logged, navigate to Servicing > Net Charge-Off inside a specific loan.This section provides a clear record of charge-off transactions and is divided into two tabs: history and adjustments. 
3. The ‘History’ section shows a record of charge-off transactions (which are payments or credits that have been designated as charge-offs) and recovery payments. This section should provide a summary of all charge-off activity on an account.
4. The ‘Adjustments’ section will show a listing of all payments and credits on the account. Here you can designate which, if any, of these transactions should be charge-offs. 
5. Click the ‘Adjustments’ tab. Here, you will see a list of payments made on the loan. Find the payment you want to mark as a charge-off. Click the toggle switch to the right of the payment listing. This will set the payment as a charge-off payment.

Recovery payments

You will be able to log recovery payments against the charged-off amount in case you unexpectedly collect on this account in the future. From the agent user's perspective, it's almost the same as normal payments, but they'll show up differently in reports.

Charge-off accounting

In accounting terms, a charge-off is a loss on a loan note asset. For tax purposes, capital losses can offset capital gains and can even offset some ordinary expenses, but the offset is usually limited to a certain amount. To account for a charge-off on your books, credit the loan note asset for the amount that will be charged off. Debit losses for the same amount. If you unexpectedly collect on this account in the future, it will be necessary to log adjusting entries for these accounts.