How Interest on Overdue Invoices is Calculated

You can configure your setup to calculate the interest owed to a supplier for overdue invoices.

Settings That Affect Interest Calculation

Set the Minimum Interest Amount option on the Manage Invoice Options page and define interest rates on the Manage Interest Rates page.

How Interest Is Calculated

When you pay an invoice that's overdue, the interest calculation uses:

• The invoice due date to determine the number of days that the invoice is overdue

• The interest rate in effect the day after the invoice due date

Note: The interest calculation is in accordance with the US Prompt Payment Act, and isn't an effective yearly rate. Interest is compounded monthly. For example, if the interest rate on a 100 USD invoice is 7 percent, after a year, the interest owed is 7.23 USD.

This figure shows the formula for calculating interest.

The interest formula uses the following variables:

• I = interest payable

• P = principal net amount payable to the supplier before adding on interest

• i = interest rate expressed in decimal form

• n = number of full periods for example, the number of days divided by 30

• z = number of residual days that's, number of days less than a 30-day period divided by 360