**Problem Details:**

How does Sage calculate interest?

**Solution:**

Interest invoices are created using the function 'Create Interest Batch' in AR Periodic Processing. This function sends the invoices to the AR Invoice Batch, where they can be reviewed and edited before posting. Although the header description field lists a Balance Overdue amount, this amount multiplied by the interest percentage (almost) never equals the amount of interest that the system generates. This is because Sage calculates interest on a daily basis per each individual invoice (if the 'Calculate Interest by' setting in the interest profile is set to 'Document' which is the default).

The formula used to calculate interest charges is as follows: (net balance) * (annual interest rate) * (number of days in the interest period) / 365

Notes:

- each invoice is calculated individually and then the interest charges are added together for the total that is seen on the interest invoice.
- even if interest is only starting to calculate at 15 days overdue, the first interest will be calculated back to the document date
- each subsequent interest calculation will go back to the last time interest was calculated. Therefore it becomes important to be consistent with the timing of generating interest invoices.
- if an 'interest free' period is given to a customer, the interest will still need to be calculated and posted, then the invoice credited, or the subsequent interest calculation (when the interest free period has passed) will go back through the interest free time period.

If the Calculate interest by setting is 'Balance' the interest is charged on the total overdue balance from the date of the oldest overdue document, using the same formula. For this reason, most of the interest calculations are set to 'Document'.

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