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Interest Calculation Process

Updated May 18, 2018

The interest calculation process is as follows:

  • First the program identifies the items on which interest is to be calculated according to the
    rules defined in the interest indicator, and any additional specifications you make when
    executing the program. The rules you enter determine the items and transaction for which
    interest can be calculated, such as:

  • Cleared or open items only

  • All clearing transactions or only those with a payment (thereby excluding uncleared credit
    memos and payments on account).

  • Credit and debit items or only debit items. If interest is to be calculated on credit items
    (for example, credit memos and payments on account), it is calculated in the same way as
    for debit items.

  • The program then determines the days for which interest is to be calculated, taking into
    account the calendar type.

  • There are basically two factors involved in interest calculation: the lower and upper limit
    of the calculation period you specify for the interest calculation run, and the time period
    between the net due date and the date of the payment document (or the clearing date for
    credit memos determined per item). The program selects those items in which the period
    between the net due date and clearing date falls within the lower and upper limit of the
    calculation period. If the lower limit of the calculation period is suppressed, the system
    uses the value from the Last key date field in the master record as the lower limit.

  • You can specify whether interest should be calculated as of the date of the last interest
    calculation. That is, only those items still open as of the date of the last run will be
    included in the new run. Cleared items are only included if the clearing date is later than
    the date of the last interest calculation.

  • Tolerance days may be specified in the interest indicator. These are added to the due date
    for net payment, but are only relevant for selecting the items to be included in the interest
    calculation run. Interest is always calculated as of the due date for net payment without
    taking into account any tolerance days. You can also define transfer days for cleared items.
    This is a way of making allowance for when payments take longer than usual to transfer or
    when the relevant accounts are not cleared promptly. Transfer days are subtracted from
    the date of the payment document or from the clearing date.

  • After determining the items on which interest is to be calculated, the program works out
    the amount in local currency. In doing so, it takes into account any interest rate changes
    within the calculation period, and if a minimum amount is specified for the interest
    indicator, it compares the calculated interest amount with the minimum amount. By
    specifying a minimum amount, you can prevent letters from being created and sent to
    vendors for insignificant interest amounts.

  • Lastly, correspondence is created if the calculated interest exceeds the minimum amount.
    The form containing information for the correspondence is defined in the interest indicator.
    However, you can specify a different form in each interest calculation run.

  • Information in the Letter
    The letters you send to your business partners about interest calculation contain the following
  • Text
  • Overview of line items
  • Interest rate overview
  • Interest overview
  • The system also creates an error list if the calculation report did not run correctly.
    You can also request the following lists:
  • Log
  • Account overview

  • Executing the Interest Calculation Program
    To calculate interest on arrears, proceed as follows from the Accounts Receivable or Accounts
    Payable menu:
    1. Choose Periodic processing -> Interest calculation -> Arrears and then the desired option:
    -> Without open items
    -> With open items
    -> Without postings
    -> Free selections
    The system displays the screen for entering your selection criteria.
    You specify the following:

  • Selection criteria
  • You can specify an interval for accounts and company codes. In addition, you can restrict
    the interest calculation to only those accounts with certain interest indicators, or to
    reconciliation accounts or to special G/L transactions.

  • Calculation period
  • If you choose the Free selections option, you can enter a lower and upper limit for the
    calculation period directly. If you choose one of the other three options, you can specify
    only the upper limit, and the system uses the value of the Last key date field in the master
    record as the lower limit. The program checks the items for this period. Alternatively,
    select the Include date of last int calc. parameter in which case the program uses the
    upper limit entered in the last interest calculation run as the lower limit of the calculation
    period. This ensures that calculation periods do not overlap. If you select the Calc. int.
    from net due date parameter, the program calculates interest as of the due date for net
    payment, ignoring any lower limit.

  • Calculation of interest
  • The rules for calculating interest are stored under the interest indicator. If you are using
    the Gregorian calendar, you can specify that, when one occurs, a leap year is taken into
    account when calculating interest. You determine which calendar type is used by specifying
    this under the interest indicator.

  • Form and printing the letters
  • You can specify your own form to define which information is contained in the form or the
    letter. If you do not do this, the form stored in the system is used. You must also specify
    the date of issue for the letter.
    1. Specify the appropriate data. You reach the second screen page with the scrolling (page
    down) key.
    It is possible to have the system automatically post debit or credit interest by batch input.
    To do this, select the Post interest settlements parameter. The date of the last interest
    calculation run is updated by batch input in the master record. If you require this, you must
    select the Maintain master records parameter.

    2. Choose Program -> Execute to calculate the interest.

    1. Note:
    a. The customer or vender master record of an account must contain an interest
    indicator so that it is taken into consideration during interest calculation.

    b. Number ranges defined for interest calculation are not used for any other purposes
    (for example, for document types). If interest is calculated on accounts from
    various company codes, then you define the same number range for each company

    c. Premium defined at time based term ( T Code OB81) is in addition to rate of
    interest define at reference interest rate.

    d. If no reference interest rate is attached on T Code OB81, then the rate mentioned
    at premium will be taken as interest rate

    e. Transaction code OBAC and OB83 are optional.



    • 29 Sep 2011 2:56 pm Arunakumar Gudla
      Thank you for sharing valuable information....