1. What is the Interest on Past Due Invoices Calculation?

The interest calculation on past due invoices determines the additional amount owed when payments are made after the due date. This calculation helps businesses recover costs associated with delayed payments and encourages timely payments from customers.

2. How Does the Calculator Work?

The calculator uses the interest 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 dividing the annual rate by 365 days, then multiplies by the number of days the payment is late and the original invoice amount.

3. Importance of Interest Calculation

Details: Accurate interest calculation is crucial for maintaining cash flow, compensating for the time value of money, and enforcing payment terms in business contracts. It helps businesses recover administrative costs and potential investment opportunities lost due to delayed payments.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Is the daily interest calculation based on 365 days or 360 days?
A: This calculator uses 365 days per year for daily interest calculation, which is the standard approach in most financial calculations.

Q2: Can this calculator handle compound interest?
A: No, this calculator uses simple interest calculation. For compound interest, a different formula would be required.

Q3: What is a typical interest rate for late payments?
A: Interest rates for late payments vary by jurisdiction and contract terms. Many businesses use rates between 1-2% per month (12-24% annually) or follow statutory rates set by local regulations.

Q4: Should interest be calculated from the due date or invoice date?
A: Interest is typically calculated from the payment due date specified on the invoice, not from the invoice date itself.

Q5: Are there legal limitations on charging interest for late payments?
A: Yes, many jurisdictions have laws limiting the maximum interest rate that can be charged on late payments. Always check local regulations and ensure your payment terms are clearly stated in contracts.