**How is Compound Interest Calculated on a Bill**

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The Interest and Reminder Statements has to be Enabled. The options to send Reminder Statements and charge interest can be set on Bill Profiles, and overridden in individual Files.

Specify a grace period and threshold AR balance for posting interest and creating mass Reminder Statements.

- For a Bill not fully paid by the end of the Grace Period, choose whether interest starts to accrue as of the Invoice Date or the end of the Grace Period.
- Choose whether interest should be posted to AR or merely appear as a memo item on Bills and Reminder Statements. This affects interest charged from this point forward. If posting interest, only simple interest may be applied.
- The stored Interest Rates are listed, the most recent first. For each Rate, the date that it applies and the annual percentage are shown. To create a new Rate, click New and enter information. Interest on an outstanding Bill is charged at the rate that corresponds to the AR date of the Bill.
- Select the frequency with which interest is calculated: Simple, Compounded Monthly, Compounded Annually, etc. If you chose that interest should be posted to AR, only Simple interest may be used.

**Compound Interest** is calculated on the outstanding balance plus accrued interest, as P (1 + r/n)nt, where:

P = principal amount (balance outstanding on Bill)

r = annual nominal interest rate (as a decimal)

n = number of times interest is compounded per year

t = number of years

For example, a Client has an outstanding Bill for $1,500, the Interest Rate is 10%, and the Compounding Frequency is Quarterly. If the Bill is 96 days overdue (calculated from the Invoice Date), then the interest is

1,500 (1 + 0.10/4)4 × 96/365 = $39.48.

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