How Late Charges Are Calculated Using Interest Tiers

Use interest tiers and charge schedules to assess increasingly higher late charges the longer a payment is overdue. You can define interest tiers and charge schedules for late charges and, if applicable, for additional penalty charges.

The interest tier provides period ranges for number of days overdue, and the charge schedule indicates the flat amount or percentage to charge in each overdue period.

Tip: The charge schedule approach provides you with a convenient method to update interest rates or amounts when your late charge policy changes. You can simply apply a new charge schedule to the applicable interest tiers. If you don't use charge schedules, then when your late charge policy changes you must update each of your applicable customer profiles with the new rates.

Settings That Affect Late Charge Calculation Using Interest Tiers

These settings affect late charge calculation using interest tiers:

• Interest Tiers: Use the Manage Interest Tiers page to define a set of interest tiers based on ranges of late days. Use these settings for each set of interest tiers:

  • Aging Type: Select the value Interest Tier.

  • Sequence Number: Use a numbering scheme to reflect the order in which to consider each period.

  • Detail Type: Select the value Past Due.

  • From Days/To Days: Enter the date range for each period.

• Charge Schedules: Use the Manage Charge Schedules page to assign late charge rates to the periods of the sets of interest tiers that you have defined. Use these settings for each charge schedule:

  • Charge Method: Select the charge method to use for the interest tier periods:

    • Amount: Apply a flat amount against overdue transactions that fall within the specified period ranges.

    • Percentage: Apply a percentage of the overdue transactions that fall within the specified period ranges.

  • Tier Levels Rate: Assign the rate, either a flat amount or percentage of the outstanding balance, to each period in the interest tier.

• Profile Class: Specify these values on the related profile class, or customer or customer account profile:

  • Use multiple interest rates option: If you set the Use multiple interest rates option, then if the effective dates for two charge schedules occur within the same charge calculation period, both rates apply to late charge calculations during that period.

    Note: This applies to interest invoices only.

  • Currency Settings: Enter for each currency in which you intend to calculate late charges, the charge schedules to use for late charges and, if applicable, penalty charges:

    • Interest Charge Type field and Penalty Charge Type field: Enter the value Charge Schedule.

    • Interest Charge Schedule field and Penalty Charge Schedule field: Enter the charge schedules that you previously defined to use for late charges and penalty charges.

How Late Charges Using Interest Tiers Are Calculated

The active interest tier and charge schedule values are used to calculate late charges using the Simple calculation formula.

The Simple calculation formula is the amount overdue multiplied by the rate and days overdue in the period:

Amount Overdue * (Interest Rate/100) * (Number of Days Late/Number of Days in Period)

This table provides an example of a charge schedule with four interest tier periods, each with an assigned interest rate.

Days Overdue Tiers	Interest Rate
1-30 days	2%
31-45 days	3%
46-60 days	4%
Over 60 days	5%

In this example:

• An invoice for $1,000 is 45 days overdue.

• There are 30 days in the billing period.

The late charges are calculated as follows:

$1,000 * (3/100) * (45/30) = $45

After an additional 15 days (60 days overdue), the late charges are calculated as follows:

$1,000 * (4/100) * (60/30) = $80