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To compound finance charges on past due debit items for a specific customer:
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 |
.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.
Preparing Receivables for Accruing and Compounding Finance Charges
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