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Interest Calculation Formula:
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Interest on overdue invoices is a financial charge applied to unpaid invoices after their due date. It compensates the creditor for the time value of money and serves as an incentive for timely payments.
The calculator uses the interest calculation formula:
Where:
Explanation: The formula calculates daily interest by converting the annual rate to a daily rate (R/100/365), then multiplies by the principal amount and number of days overdue.
Details: Proper interest calculation ensures fair compensation for delayed payments, helps maintain cash flow, and encourages clients to pay invoices on time. It's an important aspect of accounts receivable management.
Tips: Enter the invoice amount in currency units, annual interest rate as a percentage, and the number of days the invoice is overdue. All values must be positive numbers.
Q1: Is there a standard interest rate for overdue invoices?
A: Rates vary by jurisdiction and contract terms. Many businesses use rates between 1-2% per month or the statutory rate set by local laws.
Q2: Can I charge interest on overdue invoices without prior agreement?
A: This depends on local laws and contract terms. Some jurisdictions allow statutory interest, while others require prior written agreement.
Q3: Should interest be calculated on business days or calendar days?
A: Typically calculated on calendar days unless specified otherwise in the contract terms.
Q4: Are there maximum interest rate limits?
A: Yes, most jurisdictions have usury laws that limit the maximum interest rate that can be charged.
Q5: How often should interest be compounded?
A: Simple interest (non-compounding) is most common for overdue invoices, but compound interest may apply if specified in the agreement.