Automatic Interest
Payables automatically creates invoices to pay interest for overdue invoices if you enable automatic interest calculation for a supplier, and you pay an overdue invoice for the supplier in a payment batch or with a Quick payment. The new interest invoices are ready for Approval and payment. The new invoices are in the amount of the interest owed, and the interest invoice number is the same number as the overdue invoice number, but with the prefix, "INV". The payment terms are Immediate. If you do not have Immediate terms defined, the interest invoice payment terms are the same as the overdue invoice. The interest invoices have the same invoice currency and payment currency as the overdue invoices.
Payables does not create interest invoices when you pay overdue invoices using a Manual payment.
Invoice Due Date Calculation
When you pay an overdue invoice, Payables uses the invoice due date to determine how many days overdue the invoice is. Payables determines the Due date by using a start date and payment terms. For example, if the start date is 01-JAN-97 and the payment terms are Net 30, the invoice will be payable in full on 30-JAN-97.
During invoice entry Payables creates scheduled payments for the invoice and uses the invoice Terms Date and Payment Terms to calculate the due date.
During Approval, if the Recalculate Scheduled Payment Payables option is enabled for the supplier site, Payables automatically recalculates scheduled payments. During recalculation, Payables uses the most recent of the available start date options and the most favorable of the available payment terms options to calculate the latest possible due date. For detailed information on how Payables recalculates scheduled payments, see: Recalculate Scheduled Payment.
Interest Amount Calculation
In the Interest Rates window you specify what interest rate is effective during different date ranges you specify. Payables uses the following formula to calculate interest on your invoices. The interest rate Payables uses is the rate effective on the day after the due date of the invoice. Note that this calculation is in accordance with the U.S. Prompt Payment Act, and is not an effective yearly rate. For example, the interest rate on a $100 invoice is 7%. After a year, you would owe $7.23 in interest.
Accounting for Interest Invoices
Payables creates invoice liability and expense distributions for the new invoices using the accounts you specify in Payables options. You can balance your interest payments by balancing segment. If you have specified a transaction code for your interest invoices, Payables creates the additional accounting entries when you transfer your payment batches to your general ledger.
See Also
Interest Rates
Interest Payables Options
Payment Region of the Suppliers and Supplier Sites windows
Scheduling Invoice Payments
Setting Up Payables for Automatic Interest
To set up Payables to automatically create interest invoices for a supplier site:
1. In the Interest region of the Payables Options window, enable the Allow Interest Invoices check box, enter the Minimum Amount Interest, and enter the Interest Invoice Accounts. See: Invoice Payables Options.
2. In the Payables Options window enable the Recalculate Scheduled Payment option if you want Payables to automatically recalculate scheduled payment due dates, discount dates, and discount amounts during Approval. See: Matching Payables Options.
4. Set up the interest rates that Payables will use to calculate interest on overdue invoices. See: Interest Rates.
5. Optionally create a remittance advice format you want to when you pay interest invoices, and assign it to a payment program. See: Setting Up Custom Payment Formats.
Payment Batches and Quick Payments
When an invoice for an automatic interest supplier site is paid in a payment batch or with a Quick payment, Payables determines whether the scheduled invoice payment is overdue. If an invoice is overdue, Payables calculates the interest due and compares the interest amount with the minimum interest amount. If the calculated interest amount is greater than the minimum interest amount, Payables creates an interest invoice for the amount of interest accrued. Payables creates one interest invoice for each invoice payment that is past due.
Payables automatically creates an invoice distribution for the amount of each interest invoice, using the Interest Expense and Interest Liability accounts.
The interest invoices are ready for approval and payment. When you pay them, you can use a remittance advice format if you have defined one for interest invoices.
Additional Payment Batch Information
When you pay an overdue invoice in a payment batch, Payables automatically prints a Preliminary Payment Register after completing invoice selection. Payables lists the invoices you are selecting for payment, together with the interest invoices it creates. The Preliminary Payment Register also shows you how late your invoice payment is, and the interest rate it uses to calculate interest amounts. If you modify a payment batch, Payables automatically recalculates your interest expense for each past due invoice payment. See: Modifying Payment Batches.
If you print your remittance advice separately after you successfully confirm your payment batch, your remittance advice shows both the invoices you paid and the interest invoices and amounts associated with your overdue invoices. See: Confirming Payment Batches.
Manual Payments
When you record a manual payment for an automatic interest enabled supplier site, Payables notifies you if an invoice for which you are recording payment is overdue, but it does not automatically create an interest invoice for the invoice. Payables also notifies you when you adjust a manual payment if the associate invoice is overdue.
If you choose to record payment of the overdue invoice using a manual payment, you can calculate the interest amount and enter a separate invoice to pay the interest amount due. You determine the number of days the invoice is overdue from the Due Date of the Scheduled Payments window, and you determine the effective interest rate by looking in the Interest Rates window. Use the Interest Formula in Figure 1 - 19. to calculate interest. See also: Recording Manual Payments and Wire Transfers.
Void Payments and Stop Payments
When you void a payment, or confirm a stop payment, Payables automatically reverses the payment status and accounting records for the invoices that you paid. Payables automatically reverses and voids interest invoices associated with a void payment or stop payment.
If you void a payment and select the associated invoice(s) for payment on another payment, Payables recalculates your interest and creates new interest invoice(s). See also: Voiding Payments, and Stopping Payments.
AUTOMATIC INTEREST RESTRICTIONS
INTEREST INVOICE DISTRIBUTIONS: You cannot adjust amounts or interest invoice distributions of interest invoices Payables automatically creates.
365 DAY LIMIT. Payables does not continue to calculate additional interest after an invoice is 365 days overdue.
