Past Due Invoice Interest Calculator

Interest Calculation Formula:

\[ I = A \times (R / 100 / 365) \times D \]

Interest Amount (I):

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1. What is the Past Due Invoice Interest Calculation?

The Past Due Invoice Interest Calculation determines the interest owed 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.

2. How Does the Calculator Work?

The calculator uses the interest formula:

\[ I = A \times (R / 100 / 365) \times D \]

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 invoice amount.

3. Importance of Interest Calculation

Details: Accurate interest calculation is crucial for businesses to properly invoice late fees, maintain cash flow, and discourage clients from delaying payments.

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 (amount > 0, rate ≥ 0, days > 0).

5. Frequently Asked Questions (FAQ)

Q1: Is this calculation method legally enforceable?
A: This depends on local laws and the terms specified in your invoice or contract. Always consult legal advice for enforceability.

Q2: Can I use a different basis than 365 days?
A: Some calculations use 360 days for simplicity. Check your contract terms for the specified day count convention.

Q3: What's a typical interest rate for overdue invoices?
A: Rates vary by industry and region, but typically range from 1-2% per month (12-24% annually) above the prime rate.

Q4: Should interest be compounded?
A: This calculator uses simple interest. For compound interest, the calculation would be more complex and should be specified in your terms.

Q5: How do I handle partial payments on overdue invoices?
A: Typically, payments are applied first to interest, then to the principal amount. Specific application methods should be outlined in your payment terms.