Calculating Due Dates for Your Invoices
Calculating due dates for your invoices will not only save your company money on late payment interest, but will keep your clients and customers happy too. It might seem like an easy thing to keep track of, but missing due dates if you don’t pay attention to your invoices could seriously damage your credit rating. So, let’s delve a little deeper into what due dates are and how to calculate them.
What is the average due date?
The average due date is the date at which an invoice needs to be paid before any loss of interest is incurred. This average date is used to simplify the payments process and to ensure that all parties are happy with the transaction with no lost interest. Average or estimated due date is used for settling accounts, calculating interest on drawings of partners and for making lump sum payments against bills drawn on different dates with different due dates.
What are payment terms?
Every vendor will have their own unique payment terms that should be stated on the invoice. These terms will outline when the payment is due, which is typically 30 days after the invoice date (or “net 30”). It’s worth noting, however, that you should never assume all invoices are net 30. If no payment term is stated on the invoice, UK law sets the default term at 30 days.
What are invoice discounts?
In some rare cases, discounts will be offered for paying invoices early. For example, a 2% discount might be applied if the invoice is paid within 10 days.
How to calculate the due date
Don’t start with the day you received the invoice, but the date on the invoice itself. So, if the date printed on the invoice is 4 August and typical net 30 payment terms apply, then the invoice would be due on 3 September. If there is an invoice discount of 2% after 10 days, then you can deduct 2% from the full amount as long as you pay the invoice by 14 August.
Average due date calculator examples
One party involved
If there is only one party involved then the due date calculation is as simple as taking the base date and counting the number of days up from that due date. Next, multiply the number of days by the amounts and add up both the amounts and products. Divide the total products by the total amounts and add the number of days in the base date to get your average due date.
Two parties involved
This complicates matters slightly, as if one party purchases from another party and sells to yet another party, instead of paying the gross amount they might pay the net amount instead. This means we need to take the earliest date of both parties as the base date.
Paying in instalments
If the invoice is a loan that is set to be paid in instalments you’ll need to first calculate the days from the date of lending to the due date of each payment. Next, find the total of days, months or years and then the quotient will be the number of days the average due date falls away from the commencement date.
We can help
If you’re interested in finding out more about due dates in accounting, or any other aspect of your business finances, then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.