Calculation of Memo Interest vs. Generated Interest Invoices

The example below shows a Customer account with overdue Invoices aged into categories 1-30 and 31-60 Days Overdue:

^{Customer's Account with Overdue Invoices}

Memo Interest

To illustrate Memo Interest, we will walk through an example. The set up is outlined below:

Maintain Customer Master (SU13) - an Interest Code of 'M' (Memo) is set up for the Customer.
Print Statements (AR85) - the 'Calculate Interest' Restriction is set to 2% when AR85 runs for the Customer.
Company Control Initialization (CC00/Accounts Receivable) - the 'Charge Interest when Overdue' flag is set to 1-30 Days.

You may expect that the Memo Interest on this account is calculated as:

(21.26 + 920.00) x .02 = $18.82

However, the Memo Interest that is calculated by the Print Statement (AR85) program is $37.22. The following table displays the formula used:

Overdue Balance	# Months Overdue	Interest Rate	Interest Charged
21.16	x 1	x 0.02	0.42
920.00	x 2	x 0.02	36.80
Total Interest			37.22

In the Memo Interest calculation, interest is compounded on the overdue portion of the customer's account as it gets more overdue. You will also notice that the interest charge itself is added into the 1-30 Days Overdue category.

^{Memo Interest}

Generated Interest Invoices

To illustrate Generated Interest Invoices, we will walk through an example. The set up in this example is outlined below:

SU13 - an Interest Code of 'I' (Produce Interest Invoice) is set up for the Customer.
CC00/Accounts Receivable - the 'Interest Rate (Percent)' entered is 2%.
CC00/Accounts Receivable - the 'Charge Interest when Overdue' flag is set to 1-30 Days.

Here is an example of the Generated Interest Invoice:

^{Generated Interest Invoice}

The Interest charged is processed as Supplementary Charge 'SC' and comment lines are added that document the base amount upon which interest was calculated, the 'as of' calculation date and the interest rate.

The Customer Account, after the Interest Invoice is posted, is demonstrated in the example below. Note: The invoice number for generated interest invoices is prefixed with "D".

^{Customer's Account with Generated Interest Invoices}

This is what the Customer Statement looks like including the Interest Invoice. Note: The Interest Invoice is included in the 'Current' category.

^{Customer's Account with a Generated Interest Invoice}