This is used for those wanting to calculate a daily interest charge, pro-rated from a per annum charge.
This will take your interest rate and apply it to the outstanding balance. As this is per annum we then divide it by 365 to get a daily interest charge.
We then multiply the daily charge, by the number of overdue days (grace period) OR how many days since we last sent a penalty for this invoice.
For example:
$10,000 invoice
Daily P.A rate is set at 7.9%
Annualised this = $790
The invoice collects interest of = $790 / 365 days = $2.16 per day interest
If the invoice is 30 days overdue = 30 days x $2.16 per day = $64.80
Best practice:
The calculation of the overdue interest will only occur when the penalty is issued.
For this we recommend that you use New Invoice setting (to avoid compounding beyond the annualised amount)
To set a Grace Period, as if this is set to 0, there will be no interest to charge.
and to set Repeat Late Fee. For each period (example every 30 days) for the compounding of the fee to occur.
For reference we have followed guidelines set here: Gov UK