Help - calculating interest on a daily basis for overdue inv

**mailmannz** · 15 June 2005, 15:02

Re: Help - calculating interest on a daily basis for overdue

Google is your friend. Do a search on calculating interest on overdue invoices.

Mailman

**xoggoth** · 15 June 2005, 16:12

Re: Help - calculating interest on a daily basis for overdue

A=amount owed
P=Principal ie 251.6
i=interest ie 0.02
n=number days

Compound interest: A = P * (1+i)^n
Simple interest: A = P * (1+i*n)

Or excel column, eg compound:
a1=251.60
a2=1.02*a1
then copy a2 so
a3=1.02*a2
a4=1.02*a3
etc

**sdwhyatt** · 15 June 2005, 16:27

THANKYOU!

They are exactly the same figures I got using a very similar simple interest calculation - my client (who I could cheerfully push under a bus at the moment) is arguing that this is an incorrect method of calculation.

Any ideas as to where I go from here now that I can establish the calculation is correct?

**xoggoth** · 15 June 2005, 22:03

Re: THANKYOU!

If it was compound interest then it would make a difference when the daily interest is compounded. Hence all the different methods like APR etc. The above assumes it is compounded each day. Maybe he meant daily interest rate of 2% compounded monthly or something, ie A at end of month

A = P * (1 + 30*0.02) which is rather less than
A = P * (1 + 0.02) ^30

Hard to calculate unless you know how its defined.

If it's simple it makes no difference when it's compounded.

**planetit** · 15 June 2005, 23:00

Re: THANKYOU!

Would this be of any help?

There is a calculator on the site.

**tim123** · 16 June 2005, 10:46

Re: THANKYOU!

2% per day, 700% per year?

Contractual agreement or not, methinks that he can challenge this as an unenforceable fine for breach of contract.

700% pa is not a commercially justifiable rate of interest.

(He must have been a real dumbo to have agreed to it!)

tim

**sdwhyatt** · 16 June 2005, 11:16

Re: THANKYOU!

Dumbo is right - however, already doing him a big favour by only charging 2% daily interest when the standard practice is 12.75%!

It's just so annoying when there is an agreement to compensate for late payment, and then you are fighting every step of the way to try and obtain it.

Never work with friends or family......

**planetit** · 16 June 2005, 11:38

Re: THANKYOU!

Dumbo is right - however, already doing him a big favour by only charging 2% daily interest when the standard practice is 12.75%!

It's 12.75% PER YEAR! Not per day!

**tim123** · 16 June 2005, 11:45

Re: THANKYOU!

sdwhyatt,

I don't understand.

"The standard practice is 12.75"?

Almost no one charges 12.75% per day!

The normal rate is 8% over base which for the current period is 12.75% per annum.

When you say 2% per day. Do you mean 2% per annum, charged daily.

I'm not surprised that the guy doesn't like your calculation if you are using the one that xoggoth suggested.

The correct way of calculating daily interest using an annual interest rate is:

Simple interest: A = P * (1 (i/365)*n)

tim

Help - calculating interest on a daily basis for overdue inv