1. What is Daily Interest Calculation?

The daily interest calculation determines the amount of interest accrued 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 daily interest formula:

Where:

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

Explanation: The formula first converts the annual interest rate to a daily rate by dividing by 100 (to convert percentage to decimal) and then by 365 (days in a year). This daily rate is then multiplied by the invoice amount and number of days late.

3. Importance of Interest Calculation

Details: Accurate interest calculation is essential for businesses to properly invoice late payments, maintain cash flow, and discourage clients from delaying payments. It ensures fair compensation for the time value of money.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why divide by 365 in the formula?
A: This converts the annual interest rate to a daily rate, as there are 365 days in a year for interest calculation purposes.

Q2: Should I use 365 or 360 days for interest calculation?
A: Most financial calculations use 365 days for greater accuracy, though some industries may use 360 days. Check your contract terms.

Q3: What is a typical interest rate for overdue invoices?
A: Rates vary by industry and region, but typically range from 1-2% per month (12-24% annually). Always specify the rate in your contract terms.

Q4: Can this calculation be used for compound interest?
A: No, this formula calculates simple interest. For compound interest, a different formula would be needed that accounts for interest on interest.

Q5: Is this calculation legally enforceable?
A: This depends on your local laws and whether the interest terms were properly communicated and agreed upon in the contract. Consult legal advice for specific cases.