### 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 |