1. What Is Invoice Interest Calculation?

Invoice interest calculation determines the additional amount charged on overdue payments using the principal amount, 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 simple interest formula:

Where:

• \( Principal \) — Original invoice amount in dollars
• \( Rate \) — Annual interest rate as a percentage
• \( Days\ overdue \) — Number of days the payment is late

Explanation: The formula calculates simple interest based on the annual rate, prorated for the actual number of days the payment is overdue.

3. Importance Of Invoice Interest Calculation

Details: Calculating interest on overdue invoices is crucial for maintaining cash flow, compensating for the time value of money, and encouraging timely payments from clients.

4. Using The Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage, and the number of days the payment is overdue. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical interest rate for overdue invoices?
A: Rates vary by jurisdiction and contract terms, but typically range from 1-2% per month (12-24% annually) above the statutory rate.

Q2: Is this calculation legally enforceable?
A: Yes, if specified in your contract terms and conditions, and if it complies with local usury laws and regulations.

Q3: Why divide by 365 in the formula?
A: This converts the annual interest rate to a daily rate, as there are 365 days in a year for interest calculation purposes.

Q4: Can I charge compound interest on overdue invoices?
A: Compound interest requires explicit agreement in the contract. This calculator uses simple interest unless otherwise specified.

Q5: Should I include taxes in the principal amount?
A: Interest is typically calculated on the total invoice amount including applicable taxes, unless otherwise specified in your agreement.