Effects of Late or Non-payments/Interest

Do some math and see how these scenarios might play out (in simple terms). Assume that for each $100 in sales,$95 is cost and $5 is profit. Assume you extend credit and therefore do not receive your monies until some time in the future. If your interest costs are 12% per year (assuming that this money could generate a return of 12% in interest to the seller), your first month’s cost would be$1.00 (12% x $100 =$12.00 divided by 12 months = $1.00). See the table below for additional clarification. Sales Cost Net Profit Month Amount Profit After Interest Payment$100 $95$5 First $1.00$4.00
$100$95 $5 Fourth$4.00 $1.00$100 $95$5 Sixth $6.00 ($1.00)
$100$95 $5 Eighth$8.00 ($3.00)$100 $95$5 Twelfth $12.00 ($7.00)