This section includes examples of how Receivables calculates late charges:
Use interest tiers to assess increasingly higher late charges as a payment becomes overdue. See: Define Interest Tiers and Charge Schedules.
In the table below, you define a charge schedule which includes 4 interest tiers, each with an assigned interest rate.
| Days Overdue Tiers | Interest Rate |
|---|---|
| 1-30 days | 2% |
| 31-45 days | 3% |
| 46-60 days | 4% |
| Over 60 days | 5% |
In this example:
An invoice for $1,000 is overdue.
There are 30 days in the billing period.
Late charges are calculated using the Simple interest calculation formula:
Amount Overdue * (Interest Rate/100) * (Number of Days Late/Number of Days in Period)
Using the above scenario, late charges are calculated as follows, for an invoice that is 45 days overdue:
$1,000 * (3/100) * (45/30) = $45
Late charges are calculated as follows, 15 days later:
$1,000 * (4/100) * (45/30) = $60
Average Daily Balance example, including impact of post-billing debit items and calculation period.
Use the Average Daily Balance charge calculation method to calculate late charges based on the average daily balance of overdue invoices. If you send balance forward bills to your customers, then use this charge calculation method. See: Balance Forward Billing.
In the table below, there are 5 days in the billing period, and a student enrolls in a class and makes a partial payment 2 days later.
| Date | Activity | Student Balance |
|---|---|---|
| June 1 | No activity | $0 |
| June 2 | Enroll in class | $1,000 |
| June 3 | No activity | $1,000 |
| June 4 | $250 payment | $750 |
| June 5 | No activity | $750 |
In this example:
The beginning balance for this customer is $0 and there is no account activity for first, third, and fifth day.
When the student enrolls in a class on June 2, there is a single charge for $1,000.
The student makes a partial payment of $250 against that enrollment fee on June 4.
The last column represents the daily balance. The average daily balance is $700.
If the interest rate is 10%, then the total late charge for this billing period is $70:
($0 + $1,000 + $1,000 + $750 + $750 = $3,500) / 5 days = $700 $700 * 10% interest rate = $70 total late charge
It might not be cost effective to calculate and collect late charges for small amounts. Accordingly, you can set a minimum customer balance to indicate whether late charges should be assessed against a customer account or site. Receivables assesses late charges if the minimum customer balance is exceeded.
This example illustrates the difference between calculating the minimum customer balance for both the Average Daily Balance and Overdue Transactions Only charge calculation methods. In this example, the minimum customer balance is $250.
This example also illustrates how submitting the Generate Late Charges program on different dates (May 20 or May 30) can potentially change the activity that is selected for late charge calculations.
This table includes a timeline of debits and credits to a customer's account:
| Date | Charge Type | Amount |
|---|---|---|
| April 10 | Debit | $200 |
| April 12 | Debit | $200 |
| May 4 | Debit | $100 |
| May 6 | Credit | $50 |
| May 13 | Credit | $25 |
| May 18 | Credit | $200 |
| May 24 | Credit | $50 |
| May 27 | Debit | $100 |
Using the Overdue Transactions Only charge calculation method:
Using this method, Receivables compares the minimum customer balance to the sum of all customer debit and credit activities as of the date when you run the Generate Late Charges program.
If you submit the program on May 20, then the customer balance includes 3 overdue invoices (April 10, 12, and May 4) for a total of $500. The balance also includes 3 payments (May 6, 13, and 18) for a total of $275.
The total customer balance is $225, which is below the minimum balance of $250. Therefore, Receivables will not calculate late charges for this customer.
Using the Average Daily Balance charge calculation method:
Using this method, Receivables starts with the ending balance of the last balance forward bill, and subtracts all credits (receipts and credit memos) up through the due date plus receipt grace days to determine if the customer balance is eligible for charges.
In this example:
The billing date is May 1 and the billing cycle is first to last day of month.
The due date is the 10th of the following month.
The receipt grace period is 3 days.
To calculate late charges, Receivables starts with the ending balance of the last balance forward bill and includes only invoices that were on the last bill. In this case, Receivables includes invoices that were created before May 1 (April 10 and 12) for a total of $400.
Receivables then subtracts all credits that were recorded before May 13 (the due date plus receipt grace days). Credits include the receipts from May 6 and 13 for a total of $75.
In this case, the total customer balance is $325, which is higher than the minimum balance of $250. Therefore, Receivables will calculate late charges for this customer, using the Average Daily Balance charge calculation method described above. See: Using the Average Daily Balance Charge Calculation Method.
Using the Overdue Transactions Only charge calculation method:
If you submit the program on May 30, then the customer balance includes 4 overdue invoices (April 10, 12, and May 4, 27) for a total of $600. The balance also includes 4 payments (May 6, 13, 18, and 24) for a total of $325.
The total customer balance is $275, which is higher than the minimum balance of $250. On this day, Receivables will calculate late charges for this customer.
Using the Average Daily Balance charge calculation method:
Submitting the program on May 30, as opposed to May 20, does not change the customer balance calculation. To determine the customer balance, Receivables still starts with the ending balance of the last balance forward bill (May 1), and subtracts all credits (receipts and credit memos) up through the due date plus receipt grace days (May 13).
If you send balance forward bills to your customers, then use the Average Daily Balance region in the System Options window to modify how Receivables calculates the average daily balance. See: Transactions and Customers System Options.
Balance Calculation
You can indicate whether to include or exclude post-billing debit items as part of the average daily balance calculation:
If you exclude post-billing debit items, then Receivables calculates the average daily balance as described in Using the Average Daily Balance Charge Calculation Method.
If you include post-billing debit items, then Receivables includes invoices that were created after the bill cutoff date, when calculating the average daily balance.
In the previous example, the bill cutoff date is May 1. If you run the Generate Late Charges program on May 20, then Receivables includes the invoice for $100 from May 4 in the average daily balance calculation.
Calculation Period
You can specify the calculation period that Receivables uses to calculate the average daily balance:
Due-Date to Run-Date
Run-Date to Run-Date
In the previous example, if you choose Due-Date to Run-Date, then Receivables calculates late charges only on the average overdue balances that remain between the due date (May 10) and the run date of the Generate Late Charges program submission (May 20). Receivables does not include activity from any other time of the month in the average daily balance calculation, and the number of days late does not impact the late charge calculations.
If you choose Run-Date to Run-Date, then Receivables calculates late charges on the average overdue balances that remain between the prior run date (April 20) and the current run date (May 20).