# Interest Type

## Overview

There are two types of interest calcuation Simple and Compound.

Simple interest calculates interest based on the unpaid balance of an invoice.

Compound interest calculates interest based on the unpaid balance of an invoice PLUS any previous interest that has been caclulated for the invoice.

Say your client has an unpaid invoice with a balance due of \$1000.00. Let's say the first time you calculate interest on this balance the interest amount is \$14.79. That's for 30 days at an 18% annual rate.

The interest amount calculated will be the same for both Simple and Compound interest for this first calculation on the original balance.

Fast forward 30 days and it's time to calculate interest again. This time Simple and Compound interest will produce a different amount.

Let's assume the client did not make any payments. For Simple interest the amount calculated will again be \$14.79 because it is still based on the \$1000.00 balance due. The Compound interest calcuation will result in an amount of \$15.01 because the calculation is based on the balance due including interest of \$1014.79.