1. What is Late Payment Interest Calculation?

Late payment interest calculation determines the additional amount owed when an invoice is paid after its due date. It 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 late payment interest 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 late and the principal amount.

3. Importance of Late Payment Interest Calculation

Details: Accurate interest calculation is crucial for maintaining cash flow, enforcing payment terms, and ensuring fair compensation for delayed payments in business transactions.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Is the daily interest calculation based on 365 or 360 days?
A: This calculator uses 365 days per year, but some financial institutions may use 360 days. Check your specific agreement terms.

Q2: Can this calculator be used for compound interest?
A: No, this formula calculates simple interest only. For compound interest, a different formula would be required.

Q3: What is a typical late payment interest rate?
A: Rates vary by jurisdiction and agreement terms. Many contracts specify 1-1.5% per month (12-18% annually) above the prime rate.

Q4: Are there legal limits on late payment interest?
A: Yes, many jurisdictions have usury laws that limit the maximum interest rate that can be charged. Check local regulations.

Q5: Should late fees be included in interest calculations?
A: Late fees are typically separate from interest charges and should be calculated according to the terms of your agreement.