Interest Code

Pgm: ARCHGFM – Interest Code; standard Treeview path: Accounts Receivable > Setup > Local Tables > Interest Code

Interest codes are used to define the formula for the calculation of interest on overdue customer accounts. As an Interest Code is one of the required fields on every customer, at least one Interest Code must be defined. If interest in not applicable, create a code ‘N/A’ for not applicable and set all the amounts to zero.

Interest Rate Code, Name

Enter a code and name for the interest code.

Interest Rate Percent for Base Amount

Enter the rate of interest as a percent to be charged on overdue invoices assigned the charge code being defined.

Level Break Amount

Enter the dollar amount above which the system will calculate a different rate of interest.

The system allows for the calculation of two different interest rates based on the total dollar amount outstanding on a customer’s account. The level break amount represents the dollar amount outstanding for which the interest rate calculated would be different than the base rate defined in the previous field.

Take an example, where the base amount percentage is 2%, the level break amount is $5,000 and the percentage above break amount is 3%. In this case, if the total outstanding amount for a customer using this charge code is below $5000.00, interest will be calculated at a rate of 2%. If the total amount owing is $5,000 or greater, the interest will be calculated at a rate of 3%.

Interest Rate Percent Above Break Amount

Enter the rate of interest as a percent to be charged on overdue invoices that total to an amount equal to or greater than the one that was defined by the level break field.

Grace Days

Enter the number of days an invoice can be overdue without the immediate calculation of interest. Leave the default of “0” in this field if interest is to be charged immediately on overdue invoices.

Minimum Interest Amount Required Before Calculating Interest

Enter the minimum dollar amount due before interest will be charged. For example, if $50.00 is entered in this field, then if the total of all overdue invoices is less than $50.00, interest will not be charged. Minimum financial charges can be specified by selecting a minimum amount due or by selecting a minimum amount of interest to charge. Leave this field blank if you wish to select a minimum amount of interest to charge or if you do not wish to specify any minimum financial charges.

Minimum Interest Charged

Enter the minimum dollar amount of interest that will be charged regardless of the calculated interest amount. For example, if $50.00 is entered in this field and the interest calculated on all overdue invoices is $27.33, then $50.00 of interest will be charged.

Compound Interest – Checkbox

If interest is to be charged on interest, then this box should be checked.

Post Interest to G/L when Calculated – Checkbox

If checked, the interest charged is considered receivable and the appropriate GL and AR transactions will be created when the generate interest charges procedure is run. The system will automatically debit the pre-defined Interest Receivable account and credit the pre-defined Interest Revenue account.

The most common setting for this field in “Unchecked” – indicating that interest receivable is not booked as revenue until received.