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Basic Calc

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10 years 4 months ago #1179 by Blobby
Basic Calc was created by Blobby
I am concerned that either there is an error in the Basic Calc or I am misunderstanding something. I do not wish to start a Claim and find my calc is queried. I have tried to test the result three ways. I have entered the contract date of 1 August 2008,date overdue 1 Nov 2008,date paid 6th Aug 2014, amount due £1646.87. The result given by the Basic Calc is interest owed £1251.71.

I have read your method of calc for interest : debt times rate/365times days.

Using a spreadsheet I have put in every day, I have entered the Bank of England rate plus 8%, the highest is 13% and lowest 8.5%. divided that by 365 within the cell. I have put the same amount £1646.87 in each cell of the column. Then in the third cell have multiplied amount by rate which produces an interest per day. I then added all these up using, sum(). The result is £858.

The difference between that and the results from Basic Calc are so great I tested a couple of online simple interest calculators using a single rate of 8.5, they all returned figures of £800+.
Clearly I am not understanding the method.

I have found your site extremely interesting and helpful and do not wish you to think I am ungrateful for use of the Basic Calc. I just need to know it is correct, before uprgrading, and thought you should be aware in case its not just me. Couldn't find an easy link to a moderator to raise this.

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10 years 4 months ago #1180 by David J
Replied by David J on topic Re: Basic Calc
Hello Richard and thank you for your question.

The calculation is correct.

The calculation is done by taking the principal (including VAT) times the interest rate divided by 365 days x number of days late.
So: £1646.87 divided by 13% (the rate when the debt became late) = 214.09. divide this by 365 days gives the daily rate which is 0.5866 basically £0.59 per day

The debt is 2104 days late to the 6th August:

2104 times 0.5866 is: £1234.20

The output below is from the standard calculator. OK there is a £0.09p difference over the manual conversion above and that is because the calculator uses a 6 digit calculation rather than the 5 digits shown. It's close enough! I'm not sure where you got £1251 from. perhaps you can re-check?

Total invoice: = £1,646.87
Total days overdue: = 2104 days
Interest rate used: = 13%
Daily interest rate: = 0.59 (rounded up for convenience)
Total Interest owed = £1,234.11
Compensation = £70.00
Total owed = £2,950.98

So the question is, why the discrepancy and that is easy to answer!

The interest rate is fixed for the duration of the debt at the point the debt became overdue.

In this case 13%

It does not change even though interest rates have changed over time. This is good news for you, bad news for your debtor!

If there are calculators out there that are giving a result of around £800 then clearly they are incorrect and could be costing businesses thousands.

I hope that helps

Best regards

David

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