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Service charges calculation

For each invoice, Practice CS divides the amount subject to service charges by 365 days, and multiplies that by the annual percentage rate (APR) entered in the
Service Charges setup
 screen, to determine a daily rate. Then it multiplies the daily rate by the number of days old, to calculate the total service charge.
When Practice CS calculates the first service charge on an invoice, it uses the number of days since the invoice date, due date, or due date plus grace days, depending on what you select in the
Service Charges setup
 screen. Practice CS begins calculating the service charge on the due date plus the number of grace days.
For example, if the number of days until an invoice is due is 30, and you've allowed 30 grace days, Practice CS calculates a service charge 61 days after the invoice date. If the number of days until an invoice is due is 30, and the number of grace days is 0, Practice CS calculates a service charge 31 days after the invoice date.
Subsequent service charges are based on the number of days since the last service charge was assessed on the invoice.
Not compounded
You send an invoice to a client for $730 dated March 31. The invoice is due on April 30. On May 31, you assess service charges and send a statement. Your annual percentage rate is 18%.
The daily service charge rate is calculated by dividing $730 by 365 days, and multiplying that amount ($2) by 18%. The result is a daily rate of $0.36. When you send a statement on May 31, the invoice is 61 days old. Multiply 61 days by $0.36 per day, and the service charge is $21.96. The total amount due is $751.96 ($730.00 plus $21.96).
If you send another statement on June 30, Practice CS uses the same daily service charge rate to calculate the service charges for the month of June. It adds $10.80 (30 days x $0.36 per day) to the amount due previously.
Invoice amount: 3/31
Daily rate
Service charge: in May
Amount due: on 5/31 statement
Service charge: in June: (Not compounded)
Amount due: on 6/30 statement
$730.00
$0.36
$21.96
$751.96
$10.80
$762.96
Compounded interest
If you use compounded interest, the daily rate for the June 30 statement will be higher than the daily rate for the May 31 statement, because it will be calculated based on the new balance due of $751.96, rather than the original invoice amount of $730. The new daily service charge rate is calculated by dividing $751.96 by 365 days, and multiplying that amount ($2.06) by 18%. The result is a new daily rate of $0.3708. Multiply 30 days by $0.3708 per day, and the June service charge is $11.12. The total due on the June 30 statement is $763.08.
Invoice amount: 3/31
May daily rate
Service charge: in May
Amount due on: 5/31 statement
June daily rate
Service charge: in June (Compounded)
Amount due on: 6/30 statement
$730.00
$0.36
$21.96
$751.96
$0.3708
$11.12
$763.08

This article applies to:

  • Product: Practice CS
  • Subject: Accounts Receivable

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