1. What is Past Due Invoice Interest Calculation?

The past due invoice interest calculation determines the interest owed on overdue invoices based on the principal amount, annual interest rate, and number of days the payment is late. This helps businesses recover costs associated with delayed payments.

2. How Does the Calculator Work?

The calculator uses the interest calculation formula:

Where:

• \( I \) — Interest amount (currency units)
• \( A \) — Invoice amount (currency units)
• \( R \) — Annual interest rate (%)
• \( D \) — Days late (days)

Explanation: The formula calculates daily interest by converting the annual rate to a daily rate (dividing by 365 days), then multiplies by the number of days the invoice is overdue.

3. Importance of Interest Calculation

Details: Calculating interest on past due invoices is crucial for maintaining cash flow, compensating for the time value of money, and encouraging timely payments from clients. It helps businesses recover administrative costs and lost opportunity costs.

4. Using the Calculator

Tips: Enter the original invoice amount in currency units, the annual interest rate as a percentage, and the number of days the payment is late. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical interest rate for overdue invoices?
A: Typical rates range from 1-2% per month (12-24% annually), but this varies by industry, contract terms, and local regulations.

Q2: Is this calculation method legally enforceable?
A: This depends on local laws and whether the interest terms are clearly stated in the original contract or invoice. Always consult legal advice for specific cases.

Q3: Should I use 365 or 360 days for annual calculation?
A: Most financial calculations use 365 days for annual interest calculations, but some industries may use 360 days. Check your contract terms.

Q4: Can this calculator handle compound interest?
A: This calculator uses simple interest calculation. For compound interest, a different formula would be required.

Q5: What if the invoice is partially paid?
A: This calculator assumes the full invoice amount is outstanding. For partial payments, interest would typically be calculated on the remaining balance.