1. What is Interest on Unpaid Invoice?

Interest on unpaid invoice refers to the additional amount charged when a client fails to pay an invoice by the due date. This interest 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 converting the annual rate to a daily rate (R/100/365), then multiplies by the principal amount and number of days overdue.

3. Importance of Interest Calculation

Details: Proper interest calculation ensures fair compensation for delayed payments, encourages timely payments from clients, and helps maintain healthy cash flow for businesses.

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 positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Is there a legal limit on interest rates for late payments?
A: Yes, many jurisdictions have usury laws that limit the maximum interest rate that can be charged. Check local regulations before setting interest rates.

Q2: Should interest be compounded or simple?
A: This calculator uses simple interest. For compound interest, the calculation would be more complex and typically requires specifying compounding frequency.

Q3: When should interest start accruing?
A: Interest typically starts accruing from the day after the invoice due date until the payment is received.

Q4: Can this calculator handle different currencies?
A: Yes, the calculator works with any currency as long as you maintain consistency in the currency units used for input and interpretation of results.

Q5: What if the interest rate changes during the overdue period?
A: This calculator assumes a constant interest rate. For variable rates, you would need to calculate interest for each period separately and sum the results.