Overview
You can charge interest on customers’ outstanding balances. When applied, interest automatically generates an adjustment invoice linked to the original invoice. Before you can charge interest, you need to create a task code item in your pricebook and configure a payment term with interest settings.
Who uses this feature
Administrators, office employees, managers, accountants, and bookkeepers
Applies to all business types
Applies to all trades
Things to know
When an adjustment is created, the date on the original invoice does not change. The date on the adjustment invoice is the date the adjustment is created.
The outstanding balance is not linked to the payment terms set on the invoice.
The original invoice must use a payment term that has interest settings configured.
If you previously used the legacy Charge interest workflow using the Batching screen, the settings for that workflow do not migrate to this workflow. For example, if you had an invoice set up to be charged interest only once, this workflow will also charge interest only one time but wouldn’t charge again moving forward.
Before you charge interest
Before you can charge interest, you need to do the following setup:
Set up a task code item in pricebook for interest.
Create a payment term with interest settings configured.
Set up a task code item in pricebook for interest
To charge interest, you first set up a task code item in pricebook. The task you create here is added to the adjustment invoice automatically generated when charging interest.
To set up a task code item:
Go to the navigation bar and click Pricebook > Services.
Click Add Service.
In the Details tab enter service details.
When finished, click Save.
Create a payment term with interest settings
Create a payment term and configure its interest settings to apply charges on overdue balances.
Caution: Review the LEGAL DISCLAIMER before saving the interest on the payment terms.
Create a payment term
To create a payment term:
Go to the top toolbar and click Settings
.In the side panel, go to Invoicing > Payment Terms.
On the Payment Terms screen that opens, click Create Payment Term.
In the Term Preferences tab, enter a Name for the term.
Select a Payment Due date.
Due upon receipt: Payment due date is the same as the invoice or bill date.
Due in fixed number of days: Payment due date is a certain number of days from the invoice or bill date. For example, your invoice is due within 30 days of the invoice date.
Due by certain day of the month: Payment due date is a set date of the same month of the invoice or bill date. For example, your invoice is dated 1/10/2023, and the term due date is set for the 25th of each month. So the term sets the due date as 1/25/2023 because the due date for an invoice is set on the 25th of each month as it is the 25th day of the month of the invoice (January).
Due by certain day of the following month: Payment due date is going to be a set date of the month following the invoice date. For example, your invoice date is 1/10/2023 and the term due date is set on the 5th day of the following month. So this sets the due date as 2/5/2023, as it is the 5th day of the month after the invoice date month (January).
Note: If you select Due by certain day of the month or Due by certain day of the following month and enter a date exceeding the number of days available in the month, the last day of the month is chosen. For example, if you select Due by certain day of the month and enter 31, in the month of June, the due date will be the 30th, since there are only 30 calendar days in the month of June.
Select whether you want the payment term you are creating to be a global default or not.
Note: Marking a payment term as a default means that for any new customer or vendor created, the selected term is automatically assigned to each customer or vendor as its default term.
When finished, click Save.
Add interest to payment terms
To add interest to a payment term:
Select the payment term you want to add interest to or click Create Payment Term to create a new payment term.
Click the Interest tab.
Select the Charge interest toggle.
Select an Interest Rate:
If you select Flat interest rate then enter the Flat Rate amount.
For interest rate in Percentage, enter the Annual Rate in percent and select a Charge Method.
For interest rate in Maximum of flat rate or percentage, enter the Flat Rate, or the Annual Rate and select a Charge Method.
Select the Charge Interest Frequency. For a Flat interest rate, this is Once by default.
Enter a Grace Period days number.
Select the invoices on which you want to apply the interest charge.
Select the Task for which you want to apply the interest.
Note: This is the pricebook task you created specifically for charging interest and appears on the adjustment invoice automatically generated when you charge interest.
Charge interest to an invoice
Before you can charge interest to an invoice, the payment term assigned to the invoice must have the Charge interest option enabled and interest settings configured.
You can update the payment term on an invoice through the invoice record. For more, see Change payment term on an invoice or bill.
To charge interest to an invoice:
Go to the navigation bar and click Accounting
.In the side menu, click Invoices.
Search for and select the invoices you want to charge interest to.
Click Actions > Charge interest.
On the Charge Interest screen, select a date from which interest should start accruing on the outstanding balance.
Click Continue.
On the next screen, review and confirm the invoices and interest fees to be charged.
To remove an invoice from the list, click the Remove icon.
When finished, click Charge Interest. A confirmation message appears.
The invoices now have adjustment invoices that include interest charged to the original invoice.
