Previous  Next          Contents  Index  Navigation  Glossary  Library

Compounding Finance Charges

Receivables lets you compound the interest that you charge for past due items. If you compound interest, Receivables includes the finance charges that you have previously assessed when calculating finance charges on the outstanding balances of past due items.

To compound finance charges on past due debit items for a specific customer:

To compound finance charges on past due debit items for a specific customer site:

Use the following example to understand how Receivables compounds interest:

Example:

Invoice = $1000

Due Date = 01-OCT-93

Interest Rate = 1%

Days in Period = 30

Accrue Interest = Yes

Compound Interest = Yes

You run the statements or dunning program to calculate finance charges on 31-OCT-93 and get the following results:

.01/30 * $1000 * 30 = $10

As of 31-OCT-93 you have: $10 finance charges (02-OCT to 31-OCT)
$1000 invoice  
$1010  

You run the print statements or dunning letter generate program again on 30-NOV-93 and get the following results:

.01/30 * $1010 * 30 = $10.10 finance charges

* Since you are compounding finance charges, interest from 01-NOV to 30-NOV is calculated on $1100 i.e. the balance including any previous finance charges.

As of 31-OCT-93 you have: $10 finance charges (02-OCT to 31-OCT)
$10.10 finance charges (01-NOV to 30-NOV)
$1000 invoice
$1020.10

Note: If Compound Interest had been set to No, finance charges would have been calculated on 1,000 only. If accrue interest had been set to No, then again finance charges would have been calculated on 1,000.

See Also

Accruing Finance Charges

Preparing Receivables for Accruing and Compounding Finance Charges

         Previous  Next          Contents  Index  Navigation  Glossary  Library