Justification for red ink interest on bill receivable

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This discussion clarifies the calculation of 'red ink interest' on bills receivable. The interest is charged when the due date falls after the statement date. However, the core confusion arises because this interest is applied before the actual due date. While it might seem like a debit to the debtor's account, it's explained that this 'red ink interest' is calculated as of a specific date and will automatically be zero on the bill's due date itself.

Yash Thakare

Yash Thakare (Querist)
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22 April 2020 Sir, we charge red ink interest if due date is falling after statement date. However my query arises when red ink interest is calculated on bill receivable, whose due date is after statement date. Therefore we calculate negative interest, which in fact, means we are debiting the debtor's account. If our assumption is that he is making payment on statement date, he should earn rebate for early payment of the bill. But due to interest being in negative, we actually debited his account. Therefore he is paying extra even though he is paying early. I could not understand the logic behind it, or is my concept about red ink interest is flawed. Thank you very much in case you answered.
Thank you.

Aashok Kumar Sharma

Aashok Kumar Sharma

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07 May 2020 The thing to be noted here is that we are calculating the Red Ink Interest as on a particular date and where there are still days remain to have the bills become due for the customers. When the bills become due there is no question of paying for the Interest part as on the due date of invoice you you calculate Red Ink Interest, it will be ZERO only. It has some amount only if we are calculating the same before the due date of invoice to records in our books of accounts. It will be automatically zero as on the due date of invoice.

Hope this is clear now.

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Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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Message likes : 1 times

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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14 June 2020 The thing to be noted here is that we are calculating the Red Ink Interest as on a particular date and where there are still days remain to have the bills become due for the customers. When the bills become due there is no question of paying for the Interest part as on the due date of invoice you you calculate Red Ink Interest, it will be ZERO only. It has some amount only if we are calculating the same before the due date of invoice to records in our books of accounts. It will be automatically zero as on the due date of invoice. Hope this is clear now.

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