So, like most of the people starting out with own business, I picked a boiler plate contract and made minor modifications and used for a client project.
You might already be familiar with this contract (used over and over on the internet):
http://www.scribd.com/doc/13341916/WEBDEVT-Team-SPARKs-Website-Proposal-ver-12 (This is not our contract, but is a modification of the same template).
But now, the client is overdue on payment and I would like to use the terms of the contract to speed up payment. Terms are (see section 12 of the above).
Final payment of the remaining balanceNow, I'm not clear whether the interest is calculated daily or monthly or etc. Say for a payment of $7000 what's the interest for 30 days overdue?
plus any additional charges incurred
will be due within fourteen (14)
business days after delivery of this
email or letter and invoice. If
payment is not made within fourteen
(14) days of notification, simple
interest will accrue on the balance
owed at a rate of 18% from the date
the payment was due.
Ok, hwere we go. This is simple math.
So, 30 day interest is 1.5% of the orignial sum.
Interest is calcualted daily if needed (period below one month). Max. 30 days a month.
So, 7000 USD; 30 days is 105 USD.
For a lot ofd defauils how that is properly calculated check Wikipedia:
http://en.wikipedia.org/wiki/Day_count_convention Sadly bankers came up with their own way to do things.
Here's how I would do it:
Your contract says you charge Simple Interest which means that you don't earn "interest on interest" i.e. your interest payments stay constant, at a fixed percentage of the original principal.
I = P * r * t
P = Principal = $7,000
r = Interest rate (18% or 0.04931507% per day)
t = Number of days past due (30 in your example)
Interest for 30 days = $7,000 * 30 * 0.0004931507 = $103.56