1. What is Interest on Unpaid Invoices?

Interest on unpaid invoices refers to the additional amount charged when a client fails to pay an invoice by the due date. This compensates the business 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: Properly calculating interest on overdue invoices helps businesses maintain cash flow, encourages timely payments from clients, and ensures fair compensation for delayed payments.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Is it legal to charge interest on unpaid invoices?
A: In most jurisdictions, yes, provided the terms are clearly stated in the contract or invoice. Check local regulations for specific requirements.

Q2: What's a typical interest rate for late payments?
A: Rates vary by industry and region, but typically range from 1-2% per month (12-24% annually). Some jurisdictions have statutory rates.

Q3: Should I use 365 or 360 days for calculation?
A: Most calculations use 365 days for annual interest calculations, but some financial institutions use 360 days. Check your contract terms.

Q4: Can I compound interest on overdue invoices?
A: Yes, if specified in your contract terms. Compound interest would result in higher charges for long-overdue payments.

Q5: How should I communicate interest charges to clients?
A: Clearly state your late payment policy on invoices and send polite reminders before applying charges to maintain good client relationships.