How Late Charges Are Calculated Using Average Daily Balance

If you use balance forward billing, use the Average Daily Balance charge calculation method to calculate late charges.

Settings That Affect Late Charge Calculation Using Average Daily Balance

These settings affect late charge calculation using average daily balance:

Billing and Revenue Receivables System Options: Set these system options for late charges in the Late Charges section of the Billing and Revenue tab of the Create System Options page:
- Assess late charges option: Set the Assess late charges option to indicate that your enterprise assesses late charges on overdue transactions. This option is reviewed first, before reviewing the various aspects of your late charge policy defined in system options or customer profiles.
- Average Daily Balance Calculation Basis field: Select a calculation basis to include or exclude as part of the balance calculation any debit items that were billed after the most recently generated balance forward bill:
  - Include Post-Billing Debit Items: The average daily balance formula includes debit items that were created after the previous balance forward bill cutoff date.
  - Exclude Post-Billing Debit Items: The average daily balance includes only those debit items that were already included on the last balance forward bill.
- Average Daily Balance Calculation Period field: Select the period that Receivables uses to calculate the average daily balance:
  - Due-Date to Run Date: Receivables computes the sum of the applicable debits and credits for each day that falls between the balance forward bill due date and the Create Balance Forward Bill program submission date. To calculate the average daily balance, Receivables divides the sum by the number of days.
  - Run-Date to Run-Date: Receivables computes the sum of the applicable debits and credits for each day that falls between the last submission date and current submission date of the Create Balance Forward Bill program. To calculate the average daily balance, Receivables divides the sum by the number of days.
Customer Profile Class: Set these options for late charges in the Credit Limits and Late Charges tab on the Create Receivables Customer Profile Class page, or on the applicable customer or customer site profile:
- Enable late charges option: Set the Enable late charges option to enable the assessment of late charges for customers assigned this profile.
- Late Charge Calculation Method field: Select the calculation method Average Daily Balance.
- Receipt Grace Days field: Enter the number of receipt grace days after the transaction due date before late charges are calculated.
  
  Note: After the grace days expire, Receivables calculates the number of days overdue using the original due date.

How Late Charges Using Average Daily Balance Are Calculated

The Average Daily Balance charge calculation method is based on the average daily balance of overdue invoices for balance forward bills. The formula is:

(Daily Balance/Number of Days in Billing Cycle) * (Interest Rate/100)

This table provides an example of an average daily balance calculation. In this example, there are five days in the billing period, and a student enrolls in a class and makes a partial payment two days later.

Date	Activity	Student Balance
June 1	No activity	$0
June 2	Enroll in class	$1,000
June 3	No activity	$1,000
June 4	$250 payment	$750
June 5	No activity	$750

In this example:

The beginning balance for this customer is $0 and there is no account activity on the first, third, and fifth day.
When the student enrolls in a class on June 2, there is a single charge of $1,000.
The student makes a partial payment of $250 against the enrollment fee on June 4.
The last column represents the daily balance. The average daily balance is $700.

If the interest rate is 10%, then the total late charge for this billing period is $70. This is calculated as follows:

($0 + $1,000 + $1,000 + $750 + $750 = $3,500) / 5 days = $700
$700 * 10% interest rate = $70 total late charge