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Simple Interest Formula:
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Simple interest is a method of calculating the interest charge on a loan or past due invoice based on the original principal amount. It does not compound, meaning interest is not added to the principal for future calculations.
The calculator uses the simple interest formula:
Where:
Explanation: The formula calculates the interest owed by multiplying the principal amount by the interest rate and time period, then dividing by 100 to convert the percentage to a decimal.
Details: Calculating interest on past due invoices is crucial for businesses to recover lost opportunity costs, encourage timely payments, and maintain healthy cash flow. It's a standard practice in commercial transactions.
Tips: Enter the original invoice amount in your local currency, the annual interest rate as a percentage, and the time overdue in years. All values must be positive numbers.
Q1: What's the difference between simple and compound interest?
A: Simple interest is calculated only on the principal amount, while compound interest is calculated on the principal plus any accumulated interest.
Q2: Is there a legal limit on interest rates for overdue invoices?
A: Yes, most jurisdictions have usury laws that limit the maximum interest rate that can be charged. Check your local regulations.
Q3: Can I use this for partial years?
A: Yes, you can enter decimal values for time (e.g., 0.5 for 6 months, 0.25 for 3 months).
Q4: Should interest be calculated from the invoice date or due date?
A: Typically, interest is calculated from the original due date of the invoice, not the invoice date itself.
Q5: How often should I charge interest on overdue invoices?
A: This depends on your business policy, but many companies charge interest monthly on overdue balances.