Can I issue a loan to someone else through ExpensePlus?
This article is for churches and charities that account on an accruals basis.
For charities that account on a Receipts and Payments basis (cash basis), see this help guide article on loans.
Check if you should issue a loan
If you are planning to issue a loan, you will want to check if your trustees and Independent Examiner/Auditor agree that it aligns with your charitable purposes, and the correct use of your charitable funds to do this.
If in doubt, as well as your Independent Examiner or Auditor, you should consult the Charity Commission. This is absolutely vital where the recipient of the proposed loan is a trustee or a connected person to a trustee (a related party).
How to record the loan and repayments
The best method for recording a loan (from your charity to an individual or external organisation) is to issue an invoice for the full amount of the loan at the point when the funds are provided.
This will create an Accounts Receivable (debtor) record on your balance sheet. This will decrease every time a payment is received and reconciled as a part payment towards the outstanding invoice balance.
The outstanding loan balance can be tracked within the Invoicing module.
Note: When recording loan repayments, if you charge interest on loans you have given, you need to split the amount repaid accordingly into payments towards the loan invoice (the capital repayment), and the separate interest payment. You can do this via the Mixed Income screen (where you can allocate invoice income, and other income separately).
Important: Do not code loan repayment transactions as a named donation, as loan repayments should not appear in your donation reports.
How to reconcile the expense of providing the initial loan funds
The initial payment of funds will be shown as an expenditure transaction and needs to be reconciled.
If the repayment is expected in the same financial year
If the loan is expected to be repaid within the same financial year, you could reconcile this payment as an Income Repayment (a negative income transaction, or debit to income) through an income category.
To do this, create an income category called Outgoing Loans or similar.
If you then issue your invoice (as above) from the same category, they will balance each other out at the point of repayment, or otherwise show as a debtor.
Longer-term loan
If the loan is provided on a longer-term basis, you may want to account for the expenditure and income separately.
Create an expenditure category called Outgoing Loans or similar to reconcile the payment.
Please consult your Independent Examiner or Auditor for advice, as these transctions may need treating differently when preparing your year-end accounts.