Direct Marketing - How to Calculate Accrued Interest on an Invoice
Saturday, November 23, 2013
It is a standard business practice to charge interest on overdue invoices. Giving products on consignment is very similar to giving a loan to the other party -- you provided the customer with something of value that requires timely repayment. The longer the customer doesn’t pay the invoice, the more of an inconvenience the situation is to your company. Before you send your next reminder to the customer, calculate the accrued interest and add it to the bill.
1
Determine the original amount due on the invoice. Say for the purpose of an example the original invoice due is $550.
2
Determine the number of months that the invoice is late. Count from the invoice due date to the date of the next invoice reminder.
3
Divide the annual interest rate that you listed on your supplier agreement for overdue invoices by 12 to get the monthly interest rate. So for instance if the yearly interest rate is 5 percent the monthly rate is .42 percent. Some suppliers simply list the monthly rate on the supplier agreement (for instance, Interest accrued at .42% per month after invoice due date).
4
Multiply the monthly rate by the total invoice amount due to determine the accrued interest for the first month. In this example it is .42 percent (.0042) times $550 or $2.31.
5
Add the accrued interest for the first month to the total amount due. Multiply that figure by the monthly interest rate again to figure accrued interest due for the second month. For example the new invoice amount due is $552.31, so multiply that by .42 percent, which equals $2.32 in interest. Continue this step for as many months as the invoice is late.
6
Add all accrued interest from each month to determine the total accrued interest for the invoice. For two months in this example the accrued invoice interest is $4.63 ($2.31 plus $2.32).
Tags:
Direct Marketing, Marketing
1
Determine the original amount due on the invoice. Say for the purpose of an example the original invoice due is $550.
2
Determine the number of months that the invoice is late. Count from the invoice due date to the date of the next invoice reminder.
3
Divide the annual interest rate that you listed on your supplier agreement for overdue invoices by 12 to get the monthly interest rate. So for instance if the yearly interest rate is 5 percent the monthly rate is .42 percent. Some suppliers simply list the monthly rate on the supplier agreement (for instance, Interest accrued at .42% per month after invoice due date).
4
Multiply the monthly rate by the total invoice amount due to determine the accrued interest for the first month. In this example it is .42 percent (.0042) times $550 or $2.31.
5
Add the accrued interest for the first month to the total amount due. Multiply that figure by the monthly interest rate again to figure accrued interest due for the second month. For example the new invoice amount due is $552.31, so multiply that by .42 percent, which equals $2.32 in interest. Continue this step for as many months as the invoice is late.
6
Add all accrued interest from each month to determine the total accrued interest for the invoice. For two months in this example the accrued invoice interest is $4.63 ($2.31 plus $2.32).
