The Company only includes in revenue only the gross inflows of economic benefits received and receivable by the Company on its own account and excludes from revenue all amounts collected on behalf of third parties such as value added tax. The Company measures revenue at the fair value of the consideration received or receivable.
On its peer-to-peer activities, the Company includes in revenue only the amount of its fees. The amounts collected on behalf of the principal are not revenue of the Company.
On its peer-to-peer activities, the Company earns revenue principally from the following sources:
a) Loan arrangement fees
b) ISA transfer fees
c) Account management fees, including ISAs and Directors’ Loans
d) Late payment fees, default fees and legal recoveries
The Company also earns other fee income from consultancy and licensing services.
Loan arrangement fees
These are recognised at the inception of a loan becoming funded, on the basis that the performance obligation is substantially completed at this point.
ISA transfer fees
These are recognised at the point at which an ISA has been transferred to the Company from a third party.
Account management fees, including ISAs and Directors’ Loans
Account management fees are usually charged to customers on a monthly basis. Since the contracts have a minimum notice period of 12 months, and the principal performance obligations are performed by the Company upfront on the arrangement of funding for a loan, the Company forecasts fee income on a rolling basis for the next 12 months and recognises this as revenue, unless notice has been served on a contract. Revenue not yet received is held on the balance sheet as . If a repayment is not received from the business, it may become necessary to refactor/restructure or cancel the contract.
Late payment fees, default fees and legal recoveries
When a borrower's repayment is more than 5 days late, the Company charges a Late Repayment Fee of 15% of the repayment amount. After three late repayments, the Company also charges a Default fee of 17.5% of the capital outstanding. This amount is added to the outstanding balance from a borrower and is interest bearing. Furthermore, Company may add legal fees (expenses) to the amount being recovered from borrowers. The fees are recognised as a debtor in the balance sheet.
The Company takes a waterfall approach to pay out recovered funds to investors to prioritise the payment of legal expenses, then late repayment/default fees, then lender capital, then lender interest. If the probable recovery is below the value of the fees charged by the Company, the Company impairs the value of the outstanding fee debtor, by weighting the value of the fee against the estimated probable recovery.
The Company estimates probable recovery by reference to the age of the fee, as follows:
- Fees created more than 72 months ago: - fully impaired (nil value)
- Fees created within 48-72 months: 50% impaired
- Fees created within 24-48 months: 25% impaired
.
The default fees may take time to repay, however, they are due and payable immediately and do not represent a financing transaction.
Other fee income
The Company charges fees for consulting and licensing services. These are recognised when the Company has completed its performance obligations under the relevant contract.