DMBM401030 - Interest: interest on late payments: payment dates

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The payment date, more commonly referred to as the effective date of payment (EDP), is the date to which interest is charged. Payments are accepted from a range of payment methods and the rules for determining the EDP can differ. The rules for each payment method are set out at DMBM201020.

Interest is calculated from the interest date (reckonable date) to the EDP. Interest is not charged on the payment date but the date is used to determine the number of days on which interest is due. For example on a charge due 01 September 2006 and cleared with a payment with an EDP of 26 September 2006 the interest will be calculated as follows

01/09/2006 to 26/09/2006 = 25 days

Interest is charged from 01/09/2006 to 25/09/2006 inclusive and the rates of interest are those that were in force in this period.

The simple explanation is that if payment is received on the interest date then no interest is payable. If payment is received the next day then one day’s interest is payable but at the interest rate that was in force the previous day. The principle here is that had payment been received on the interest date the funds could have been invested at the rate that was in force on that day.