Interest invoicing in (ARS160)

Purpose

When applied

In most countries, it is allowed to bill a customer reasonable interest for a late payment, since paying too late can be regarded as an unauthorized loan. However, the rules for when and where interest invoicing is permitted vary from country to country and between different lines of business.

1. What to consider before invoicing interest

   Three questions are important when deciding whether interest should be invoiced:

   1. Is it accepted in our customer's culture? For example, the acceptance of interest invoicing is lower in the Latin countries than in Scandinavia.

   2. How this affects our relationship with the customer? Consider whether invoicing interest may cause complications or a potential loss of goodwill in the eyes of an otherwise reliable customer.

   3. What are my own costs for invoicing? The administrative costs for creating and monitoring interest invoices should be considered as well as the time that may be required to deal with a problematic customer regarding the invoice.

How

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 'Interest Invoicing Rule. Open' (CRS460/E). The rule is then connected to the customer in 'Customer. Open' (CRS610/K).

These are the calculation bases available:

• 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.

1. 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 (ARS160)/365)

2. 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 has been 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)

3. 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, 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 above.

4. Interest invoicing methods

   When creating an interest rule, one of two interest invoicing methods is selected. These methods define whether only invoices paid too late is included in the interest calculation or whether open invoices should be included as well.

   The method defined for the interest rule is proposed when creating an interest invoice proposal in 'Interest Invoice. Open' (ARS160) but can be changed.

   Note: If interest invoicing method 2 is selected, invoices that are open but not due will not be included in the final interest invoice when calculation base 1 or 2 is specified in the interest rule.

5. 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.

6. Additional payment reference

   You can create a parallel invoice number using 'Parallel invoice number' field for customer invoices. The rules for this are defined in 'Additional Payment Reference. Open' (CMS090). The only available '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.

7. Time fence

   Paid invoices can be excluded dependent on the number of days between payment date and interest invoice proposal date.