1. What is Interest on Past Due Invoices?

Interest on past due invoices is the additional amount charged when a payment is not made by the due date. This compensates the creditor for the time value of money and the inconvenience of delayed payment.

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 dividing the annual rate by 365 days, then multiplies by the number of days the payment is late.

3. Importance of Interest Calculation

Details: Calculating interest on overdue invoices helps businesses maintain cash flow, discourages late payments, and ensures proper compensation for delayed receivables.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Is this calculation method legally enforceable?
A: This depends on local laws and the terms specified in the original invoice or contract. Always consult legal advice for enforceability.

Q2: Can I use a different basis for daily calculation?
A: Some calculations use 360 days instead of 365 for simplicity. Check your contract terms for the specified method.

Q3: What's 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) above the prime rate.

Q4: Should compound interest be used instead?
A: Simple interest is most common for overdue invoices, but compound interest may be specified in some contracts.

Q5: How do I handle partial payments?
A: Interest is typically calculated on the remaining balance after any partial payments are applied.