Your accounts software may be calculating interest on earlier interest

The software setting is not the agreement

An overdue account grows each month because your system automatically adds interest. Before relying on the statement, check whether the next calculation includes earlier interest or fees as well as the unpaid invoice. The software may be doing exactly what its settings instruct while producing a balance that does not match the customer's actual agreement.

Inspect one account manually

Imagine a supplier with a $10,000 unpaid invoice and a separate interest charge posted last month. Export the calculation showing the amount used as the base for the next charge. Ask whether the system now uses $10,000 or the increased balance. Do not decide which treatment is correct until the relevant terms and applicable rights have been reviewed.

Match the calculation to the terms

business.gov.au recommends clear payment terms in contracts. Give the adviser the accepted wording and the software calculation together. Ask about the permitted basis, rate and treatment of earlier charges. A clause mentioning interest does not remove the need to understand how that interest is calculated, and a default system setting does not establish a contractual entitlement.

Source: business.gov.au: Prepare a contract

Check other automated components

Identify whether late fees, disputed items or other adjustments are included in the calculation base. Keep principal, interest and fees visible as separate components. In the supplier example, excluding an unsupported fee from one statement will not fix the next statement if the recurring rule continues to include it. Review the configuration as well as the individual account.

Correct errors with a traceable record

If a problem is confirmed, obtain accounting and legal advice about the correction and customer communication. Preserve the original statement and calculation rather than silently replacing them. Record what changed and why. Check whether the same rule affects other accounts before assuming the issue was isolated to the customer who noticed it.

Verify the next output

After an authorised change, test a representative statement against the reviewed calculation and inspect the next scheduled run. Tell collection staff which balance is supported. The objective is a repeatable, explainable account calculation that follows the actual entitlement. Automation should save work, but it still needs checking when a small configuration choice can repeatedly increase the amount demanded.