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Prompt Payment


Calculators and Formulas for Paying Interest

The Prompt Payment rule requires agencies to pay interest on any late payments starting on the day after the day the payment was due. You must figure the interest due from that day until the day you pay the invoice.

For example, if the vendor's bill was due April 1 and the agency did not pay until April 11, the payment is 10 days late. (April 2 through April 11 = 10 days.)

The relevant interest rate is the rate on the day the agency began to owe interest – the day after the day the payment was due.

Calculators – Use the correct calculator for your situation

Payment is less than
31 days late

Simple Daily Interest Calculator

Payment is more than
a month late

Monthly Compounding Interest
Calculator

Simple daily interest – the formula

This is the formula the calculator uses to determine simple daily interest:
P(r/360*d)

  • P is the amount of principal or invoice amount;
  • r is the Prompt Payment interest rate; and
  • d is the number of days for which interest is being calculated.

For example, if payment is due on April 1 and the payment is not made until April 11, a simple interest calculation will determine the amount of interest owed to the vendor for the late payment. Using the formula, an invoice in the amount of $1,500 paid 10 days late and at an interest rate of 6.5% would be calculated as follows:  $1,500 (.065/360*10) = $2.71

Monthly compounding interest – the formula

This is the formula the calculator uses to determine monthly compounding interest:

P(1+r/12)n * (1+(r/360*d)) -P

  • P is the amount of principal or invoice amount;
  • r is the Prompt Payment interest rate;
  • n is the number of months; and
  • d is the number of days for which interest is being calculated.

The first part of the equation calculates compounded monthly interest. The second part of the equation calculates simple interest on any additional days beyond the number of months.

For example, if the amount owed is $1,500, the payment due date is April 1, the agency does not pay until June 15, and the applicable interest rate is 6%, interest is calculated as follows:

$1,500(1+.06/12)2 * (1+(0.06/360*15))-$1,500 = $18.83

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