prompt payment

Calculation of Prompt Pay Interest Penalty 1315.10

Prompt Payment Interest is calculated from the day after payment was due until the day payment is made. The interest rate in effect on the day after the payment due date is used to calculate the interest penalty.

Also see:

Simple Daily Interest

The following formula can be used to determine simple daily interest:

P(r/360*d)

  • P is the amount of principal or invoice amount;
  • r equals the Prompt Payment interest rate; and
  • d equals 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 above, 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 following formula can be used to determine monthly compounding interest in accordance with 1315.10(a)(3):

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

  • P is the amount of principal or invoice amount;
  • r equals the Prompt Payment interest rate;
  • n equals the number of months; and
  • d equals 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 a monthly increment.

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


   Last Updated:  March 14, 2014