View Full Version : Help - calculating interest on a daily basis for overdue inv

sdwhyatt

15th June 2005, 14:48

Hi

I have a client who is querying the calculation used to generate a daily interest rate of 2% on an amount of £251.60. Can anyone point me in the direction of a template or website where I can generate this calculation and check the formula before deciding to take this further?

mailmannz

15th June 2005, 15:02

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

Mailman

xoggoth

15th June 2005, 16:12

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

15th June 2005, 16:27

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

15th June 2005, 22:03

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

15th June 2005, 23:00

Would this (http://www.payontime.co.uk/) be of any help?

There is a calculator on the site.

tim123

16th June 2005, 10:46

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

16th June 2005, 11:16

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

16th June 2005, 11:38

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

16th June 2005, 11:45

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

Debbie Reinvented

17th June 2005, 15:24

www.payontime.co.uk/legislation/legislation_main.html (http://www.payontime.co.uk/legislation/legislation_main.html)

tim123

17th June 2005, 15:56

Debbie,

The problem is sdwhyatt has a contractual agreement, so the statutory rules don't apply (other than to make the contract enforceable).

But there seems to be a disagreement (mis-understanding) between the parties over what the contractual agreement actually is.

I'd really like to know why he thinks he can charge 2% per day (and why he though it reasonable to ask for same in the first place).

Tim

Debbie Reinvented

17th June 2005, 16:00

okay so I'm not a detail person