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Accruing Finance ChargesExample:

Invoice = $1000

Due Date = 01-OCT-10

Interest Rate = 1%

Days in Period = 30

Accrue Interest = Yes

You run the statements or dunning program to calculate finance charges on 31-OCT-10 and get the following results:

.01 * $1000 * 30 = $10

30

As of 31-OCT-10 you have: $10 finance charges (02-OCT to 31-OCT)

$1000 invoice

$1010*

  • Since you are accruing finance charges, the amount of the finance charge is added to the amount due balance.

Compounding Finance ChargesLets you compound the interest that you charge for past due items. If you compound interest, Receivables includes the finance charges that you have previously assessed when calculating finance charges on the outstanding balances of past due items.

Use the following example to understand how Receivables compounds interest:

Example:

Invoice = $1000

Due Date = 01-OCT-10

Interest Rate = 1%

Days in Period = 30

Accrue Interest = Yes

Compound Interest = Yes

You run the statements or dunning program to calculate finance charges on 31-OCT-10 and get the following results:

.01/30 * $1000 * 30 = $10

As of 31-OCT-10 you have:

$10 finance charges (02-OCT to 31-OCT)

$1000 invoice

$1010

You run the print statements or dunning letter generate program again on 30-NOV-10 and get the following results:

.01/30 * $1010 * 30 = $10.10 finance charges

* Since you are compounding finance charges, interest from 01-NOV to 30-NOV is calculated on $1100 i.e. the balance including any previous finance charges.

As of 31-OCT-10 you have:

$10 finance charges (02-OCT to 31-OCT)

$10.10 finance charges (01-NOV to 30-NOV)

$1000 invoice

$1020.10

Note: If Compound Interest had been set to No, finance charges would have been calculated on 1,000 only. If accrue interest had been set to No, then again finance charges would have been calculated on 1,000.

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