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Is there a simply way to calculate the carrying cost of a past due accounts receivable?

Answer: Yes. It uses this formula: [Principal amount] x [interest rate] divided by [365 days in a year] times [the number of days the debt is outstanding].

For example: The carrying cost of a $1,000 invoice that is paid 100 days late at a rate of 6%* would be calculated as follows:

$1000 x .06 / 365 x 100 = $16.44

*The key is to determine the appropriate interest rate to use. I used 6% which happens to be the prime rate [4%] plus 2% ----- which might or might not be an appropriate interest rate for your company. Different companies use different imputed rates of interest. Some might use their average cost to borrow money. Other companies might not borrow money and could use the interest rate they receive on the money they have on deposit. Other companies might use a different rate based on some internal calculation or formula.

One more example... The carrying cost on $17,777 paid in 66 days at 7.5% interest rate would be: $17,777 x .075 / 365 x 66 = $241.09

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