1. What is the Interest Calculation Formula?

The interest calculation formula \( I = P \times \frac{r}{12} \) calculates the monthly interest on overdue invoices, where P is the principal invoice amount and r is the annual interest rate converted to decimal form.

2. How Does the Calculator Work?

The calculator uses the interest calculation formula:

Where:

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

Explanation: The formula converts the annual interest rate to a monthly rate by dividing by 12, then multiplies by the principal amount to determine the monthly interest charge.

3. Importance of Interest Calculation

Details: Accurate interest calculation is crucial for managing overdue invoices, ensuring proper compensation for delayed payments, and maintaining healthy cash flow in business operations.

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, interest rate ≥ 0).

5. Frequently Asked Questions (FAQ)

Q1: Why calculate interest on overdue invoices?
A: Calculating interest helps businesses recover costs associated with delayed payments and encourages timely payments from clients.

Q2: What is a typical interest rate for overdue invoices?
A: Interest rates vary but typically range from 1-2% per month (12-24% annually), often based on statutory rates or contractual agreements.

Q3: Should interest be compounded monthly?
A: This calculator calculates simple monthly interest. For compound interest, a different formula would be required.

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

Q5: How should interest calculations be documented?
A: Interest calculations should be clearly documented in invoices, payment reminders, and accounting records for transparency and legal compliance.