Interest invoicing in (ARS660)

In most countries, it is allowed to bill a customer a reasonable interest for a late payment. However, the rules regarding interest invoicing differ by country and industry. A program named 'Interest Invoice. Open' (ARS660) is introduced to manage the interest calculation for late customer payments and create an interest invoice.

The function (ARS660) provides new capabilities for processing interest invoices. The new function has API support, configurable views, processes jobs by scheduling, and can calculate interest rates by date. You can include both the creation and update of a proposal in the same run. If a proposal is created from a blank division, you can include invoices existing in more than one division. The user can then decide whether just one interest invoice is created for all invoices in all divisions or if one interest invoice is created for each division. Also, there is an option enabling several users to work on the same interest invoice proposal.

To bill a customer interest for late payments and the starting conditions that you must meet, see Invoicing interest for late customer payments in (ARS660).

Purpose

These are the purposes of invoicing interest:
  • To encourage the customers to pay invoices before they are due.
  • To compensate for costs caused by disturbances in the planned cash flow due to late payments.

Limitations

You cannot define amounts on the interest invoice rule on 'Interest Invoicing Rule. Open' (CRS460/E) for a specific division or currency. This limitation may affect how invoices are selected when creating a proposal in (ARS660) from a blank division that includes multiple divisions in the selection on 'Interest Invoice. Open' (ARS665/E). The 'Min int amt/inv' is compared to the recorded amount in 'Interest Invoice. Open Invoices' (ARS662/B1) at the invoice level, considering only paid amounts. In contrast, 'Min amt int inv' is compared to the recorded amount in 'Interest Invoice. Open Details' (ARS661/B1) at the payer level. The 'Invoice charge' is added in the division local currency 'Company. ConnectDivision' (MNS100/G) but is converted to (ARS661/B1) line currency on the interest invoice.

Interest calculation bases

According to the agreement with the customer, interest is invoiced based on one of three calculation bases. The proper calculation base to use is defined in (CRS460/E). The rule is then connected to the customer in 'Customer. Open' (CRS610/K).

These are the calculation bases:
  • Interest is calculated from the due date for invoices paid too late and open invoices that are past due.
  • Interest is calculated from the invoice date for both paid and unpaid past due invoices.
  • Interest is calculated from the invoice date for all invoices, even if they are not past due.
These are how the interest are calculated using these bases:
  • Interest from due date for invoices paid too late and open invoices that are past due

    The calculation for interest for invoices paid too late is based on the payment transaction: Amount x annual interest % x (number of days between due date and payment date/365)

    This is the calculation for open, past due invoices, and the interest is based on the invoice transaction: Amount x annual interest % x (number of days between due date and the To date selected when creating the interest invoice in (ARS660)/365)

  • Interest from invoice date for both paid and unpaid past due Invoices

    The interest is calculated as soon as the invoice is past due, regardless of whether any payment is made. This is the calculation for paid invoices: Amount x annual interest % x (number of days between invoice date and payment date/365)

    This is the calculation for unpaid invoices: Amount x annual interest % x (number of days between invoice date and the To date selected when running the interest invoicing routine/365)

  • Interest from invoice date for all invoices

    In some lines of business, charging interest from the invoice date may be part of the company's payment terms. The customer is extended credit for a certain number of days. If the invoice is not paid within that time, the customer is liable for the interest from the purchase or invoice date.

    For example, if a retail company offers a price on a specific product now, you do not have to pay before a certain date next year. However, if you do not pay before that date, interest accrues from the date of the purchase.

    The interest is calculated the same way as for calculation base 2.

  • Interest invoicing methods

    One of two interest invoicing methods is selected when creating an interest rule. These methods define whether only invoices paid too late are included in the interest calculation or open invoices are included.

    The method defined for the interest rule is proposed when creating an interest invoice proposal in (ARS660), which you can change.
    Note: If interest invoicing method 2 is selected, open invoices but not due are not included in the final interest invoice when calculation base 1 or 2 is specified in the interest rule.
  • Interest on partial payments

    Interest is also calculated for partial payments until the invoice is completely paid. When invoicing interest, the system keeps track of previously invoiced and paid amounts.

  • Additional payment reference

    You can create a parallel invoice number using the 'Parallel invoice number' field for customer invoices. The rules for this are defined in 'Additional Payment Reference. Open' (CMS090). The only available value in 'Reference number type' is 1='Parallel invoice number'. The parallel invoice number is only added to the XML when an invoice document is created. The parallel invoice number is saved in the FSAPRN table together with the invoice number.

  • Time fence

    You can exclude the paid invoices depending on the number of days between the payment date and the interest invoice proposal date.

    The paid invoices are included in an initial interest invoice proposal but blocked with line status 7. The invoices are then blocked in accounts receivable and are not included in other interest invoice proposals.

  • Interest rate by date

    You can calculate the interest according to the rate defined in 'Interest rate by date. Open' (ARS008). A yearly rate is not allowed in some countries; instead, you must create the interest invoices by using a rate defined on the date level.

You can process interest invoice proposals in (ARS660) through these API programs and transactions:

  • ARS660MI Manages interest invoice header (FARIIH table)
  • ARS661MI Manages interest invoice details (FARIID table)
  • ARS662MI Manages interest invoice invoices (FARIII table)
  • ARS665MI Manages interest invoices