Customer Daily Interest

Daily interest can be assessed for open item accounts that are set up for interest.  There is a Daily Interest Calculator Window on the Invoices View of the customer inquiry that can be used to calculate interest on a customer's outstanding balance.  To launch the calculator click Daily Interest.  To see daily interest on a future date for open item customers you can use Cash Receipts Entry - Future Interest Owed Window.

Setting Up a Customer for Open Item Daily Interest

1.  In order for a customer service to be considered for open item interest the account's service finance charge setting must be set to Yes.  Go to the Customer Service wizard and set the Allow Finance Charges option to Yes.

Other Setup for Assessing Interest

1.  Build an open item interest payment transaction code and add it to the appropriate cash profiles.  The transaction code will route the money to a GL account for tracking purposes.

2.  Build the Open Item Daily Interest tables for each rate class within each service.  This holds the rates and the grace days.

3.  A balance qualifies for interest if there is a balance after the due date plus the number of grace days maintained on the Open Item Daily Interest Maintenance.  Interest can be calculated starting from the bill date or the due date, which is determined by the Application Options setting Calculate OI Interest by Due Date.   If the Due Date is to be used the Application Options setting Calculate OI Interest from Due Date must be set to Yes.  

4.  If the Application Option Freeze Daily Interest Until Next Bill is set to yes:

• Then, the interest calculation will check the desired interest through date against the last billed due date for the location on the invoice.  If the through date is <= the last billed due date, then the actual date used to calculate interest through will be the last *billing* date instead.  This means that once billed, interest on the balance forward is effectively frozen until after the last due date.

• And if the payment date is <= the last billing date, the interest calculation does NOT use the last billing date and works like normal.  See WI 2593.  

5. If the Application Options Use latest bill from any service is set to yes along with the Freeze Daily Interest Until Next Bill option, then you can select a single service, or ALL services, or None (which is the default).  When calculating interest for an invoice with a service code matching this setting, it will use the latest billing/due date of all services.  If the calculation date is <= this last due date and >= this last billing date, interest will only be calculated up to the last billing date, effectively freezing interest during that period until it passes the last due date.  WI #3240.  

Daily Interest Notes

• The daily interest rate is the annual rate from the interest table / 365.25.

• Each daily interest block calculation is the number of days * the daily interest rate (annual rate from the interest table / 365.25) * the charge balance at the time.  Interest already paid and regular payments are factored into this.

• If the invoice balance excluding payments is <= 0, interest is not calculated.

• Lien Interest - If the Application Options setting Calculate OI Interest from Due Date is set to yes, then the due date is used for interest calculation and daily interest is calculated on liened/rolled invoices after they have been liened/rolled.  Lien costs are excluded from the principal in interest calculations.  When calculating lien interest in between payments the calculations will always use the interest factors that fall within the time period of the due date.

• If there is an invoice stop date, it is factored into several places.  If the due date above is >= this interest stop date, then interest is not calculated.  Or when it is calculating partial payment blocks as soon as it reaches the interest stop date it stops accumulating interest.

• Partial payments are taken into account.  From the due date above, it loops through each payment by date and calculates the daily interest between each payment to account for the interest already paid and the number of days between each payment and the charge balance at that time (it is possible further charge adjustments could be added to the invoice).  Interest paid was added as a field to the invoice detail record whenever interest is paid.

Daily Interest Calculation Example

Annual interest rate of 14%, so the daily rate is 0.0383299110%.

No grace days.

The billing date is 04/01/20 with a balance of $100.  There is a payment on 05/01/20 of $20, a payment on 06/01/20 of $20.  The due date was 05/01/20 but doesn’t factor into the equations only that it now starts calculating interest as of the billing date: