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Interest Calculation Formula:
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The Interest On Overdue Invoices calculation determines the interest amount payable on overdue invoices based on the invoice amount, annual interest rate, and number of days the payment is late. This helps businesses recover costs associated with delayed payments.
The calculator uses the interest calculation formula:
Where:
Explanation: The formula calculates daily interest by dividing the annual rate by 365 days, then multiplies by the number of days late and the principal amount.
Details: Accurate interest calculation is crucial for businesses to properly invoice late payments, maintain cash flow, and discourage clients from delaying payments beyond agreed terms.
Tips: Enter the original invoice amount in currency units, annual interest rate as a percentage, and number of days the payment is overdue. All values must be valid positive numbers.
Q1: Is the daily interest calculation based on 365 or 360 days?
A: This calculator uses 365 days per year for daily interest calculation, which is common practice in many jurisdictions.
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's a typical interest rate for overdue invoices?
A: Interest rates vary by jurisdiction and contract terms. Many businesses use rates between 1-2% per month (12-24% annually) for overdue payments.
Q4: Are there legal limits on interest rates for overdue invoices?
A: Yes, many jurisdictions have usury laws that limit the maximum interest rate that can be charged. Always check local regulations.
Q5: Should interest be calculated from the due date or invoice date?
A: Interest is typically calculated from the due date specified on the invoice, not from the invoice date itself.