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How QuickBooks calculates finance charges

QuickBooks uses the following equation to calculate finance charges:

Number of days past due x balance due x rate/365

For example, if on June 1 you assess a finance charge for a customer whose terms are Net 30. QuickBooks creates an invoice for the amount of the finance charge. If your customer does not pay by July 2 and you added terms of Net 30 to the finance charge invoice and selected the "Assess finance charges on finance charges" checkbox, QuickBooks calculates interest on both the original overdue amount and on the finance charge amount. If you did not select this checkbox, QuickBooks calculates finance charges only on the original overdue amount.

Important: Laws vary about whether you can charge interest on overdue interest payments. Confirm with the appropriate jurisdiction that you are in compliance with that jurisdiction's lending laws.

See also

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