1. What is the Interest Calculation?

This calculator computes the monthly interest on a late invoice using the formula I = P × (r / 12), where P is the invoice amount and r is the annual interest rate. It helps determine the additional amount owed when payments are delayed.

2. How Does the Calculator Work?

The calculator uses the interest formula:

Where:

• \( I \) — Monthly interest (₹ or currency)
• \( P \) — Invoice amount (₹ or currency)
• \( r \) — Annual interest rate (decimal)

Explanation: The formula calculates the monthly interest by dividing the annual rate by 12 and multiplying it by the principal amount.

3. Importance of Interest Calculation

Details: Accurate interest calculation is essential for businesses to recover costs associated with late payments and to maintain healthy cash flow management.

4. Using the Calculator

Tips: Enter the invoice amount in ₹ or your currency, and the annual interest rate as a percentage. All values must be valid (amount > 0, rate ≥ 0).

5. Frequently Asked Questions (FAQ)

Q1: Why calculate interest on late invoices?
A: It compensates businesses for the delay in payment and encourages timely payments from clients.

Q2: What is a typical interest rate for late payments?
A: Rates vary by agreement and jurisdiction, but common rates range from 1% to 2% per month (12-24% annually).

Q3: Should interest be compounded monthly?
A: This calculator uses simple interest. For compound interest, additional calculations would be needed.

Q4: Are there legal limits on interest rates?
A: Yes, many jurisdictions have usury laws that limit the maximum interest rate that can be charged.

Q5: How should this interest be communicated to clients?
A: Clearly state late payment terms in invoices and contracts, including the interest rate and calculation method.