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Average Due Date

Last updated date: 16th May 2024
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What is the Average Due Date

The average due date refers to the weighted average of a given number of dates having equal or unequal amounts. It is one equivalent date for various dates so that interest that has to be measured from these respective dates can alternatively be measured from the average due date.

In case a party has to pay various amounts to the same party that are due on different dates and in case they wish to settle the total amount on a fixed date without gaining or losing anything by way of interest is referred to as the average due date. This amount can be due on anything ranging from loans to bills of exchange or any other type of transaction.

What is the Maturity of a Bill?

The maturity of a bill or a transaction refers to the date on which the bill of exchange is due to be paid. For calculating this, an additional 3 days are added as a grace period.

What is the Due Date?

Due date is a date on which transactions such as loan installments, sales, purchases, bills, etc. fall due for the settlement.

How is the Due Date Calculated?

The due date is calculated by adding the bill/credit period on the relevant date + 3 grace days if it is applicable. The relevant dates of bills of exchange can be the date of the bill or the date of acceptance according to the terms of the bill. In other cases, it can be the date of the transaction.

The due date of a bill of exchange is calculated for finding the date on which the payment of the transaction or the bill is due. To calculate the due date of the bill of exchange, the steps given below are followed:

  1. The first step is identifying the start date or the base date, which refers to the date wherein the bill of exchange was drawn.

  2. Then the number of days or months is added after which the bill is due for the payment.

  3. And lastly, an additional period of 3 days is added as the grace period.

What is the Effect of Holidays while Ascertaining the Due Date?

  1. Considering the bills of exchange and promissory notes, in case the due date falls on a public holiday, then the due date is considered as the next working day. Sundays are regarded as public holidays.

  2. If there are any emergency holidays, then the subsequent working day is considered to be the due date.

  3. If transactions other than promissory notes and bills of exchange are considered, the due date can be considered on a working day, which is after the public holiday or the emergency holiday.

Penalties for Overdue Invoices

In most cases, there is a cost associated with failing to make a payment on or before a stated due date. For Example,  If you don't pay your credit card bill on time, you'll be charged a late fee, which might be a percentage of the entire amount outstanding.

  • Late invoice payments may have a significant impact on your cash flow as a small business, hurting your budget and even day-to-day operations. Due dates play an important role in being paid on time.

  • If a customer fails to pay on time, the first step should be to write a reminder letter. This may be as simple as a few clicks with the correct software, and they'll get a reminder with a link to the original invoice.

  • A late charge can also be imposed on the invoice after the due date to promote prompt payment. The late fee will then be added to the amount of the original invoice, requiring the consumer to pay both the original total and the late fee.

Maturity Date

  • The maturity date is the point in time when a fixed income instrument's principal must be returned to an investor.

  • The maturity date is also the date by which a borrower must repay an instalment loan in full.

  • The maturity date is used to categorize bonds into three major categories: short-term (1-3 years), medium-term (10 or more years), and long-term (30 year Treasury bonds).

  • Once the maturity date is reached, the interest payments to investors end since the loan arrangement is no longer in effect.

Important Points to remember

  • The due date of the first transaction, the due date of the last transaction, or any other due date between the first and the last transaction can be used as the base date/zero date, however, an earlier due date is preferred.

  • If the due date is a fraction, round it to the next whole number. action can be used as the base date/zero date, however, an earlier due date is preferred.

  • Always disregard the first day and include the last day when computing the number of days.

  • A refund is offered if the payment is paid before the due date. If the payment is made beyond the due date, interest will be assessed.

  • The method for determining the average due date is used if two people sell products to each other on separate dates.

Average Due Date = Base Date ± \[\frac{Total\:of\:the\: Products}{Total\: of\: the\: Amounts}\]

  • Due Date: The due date is the day on which the sum is due.

  • Maturity Date: Always estimate the Maturity date after three days of Grace have passed. When there is a holiday on the maturity date, the due date is the following working or business day before the holiday.

FAQs on Average Due Date

1. Define Average Due Date and Mention its Uses?

Average due date refers to the weighted average date of several different due dates for the transactions due between the parties. The average due date can be used in any case when the items of the same kind of nature and between the same parties are represented by one date for the ease of convenience to calculate interest and/or settlement.

The uses of Average Due Date are:

  1. The payments due on different dates by the debtor to the creditor.

  2. The payables and receivables both being due between the parties.

  3. Interest on the drawings that are made on various dates.

  4. The loans that are repayable in equal installments.

  5. The loans that are distributed in equal installments.

2. What is the Process to Calculate the Average Due Date?

The procedure to calculate the average due date is as follows:

  1. Determine the due dates of all the transactions and bills if not given.

  2. Select a due date as the base date, preferably the one at the earliest. However, any other date apart from the due date can also be taken.

  3. Then calculate the days of the difference between every due date and the base date. In case the due date is prior to the base date, then the days will have a minus sign against them.

  4. The days calculated here are multiplied with the respective amounts of the transactions or bills.

  5. The total of this product is divided by the total amount of the transactions.

  6. The figure that is obtained determines the average due date. This would be days away from the base date but in case there is a minus sign, then it would be days before the base date.

  7. The days would either be added or subtracted from the base date for determining the average due date.

3. How is an average due date useful for accounting problems?

Average Due Date can be beneficial in the following accounting problems:

  • Problems in calculating interest on drawings made by partners on separate dates.

  • Problems with account settlement caused by a series of bills of exchange due on separate dates.

  • Account settlement issues between a principal and an agency.

  • Problems affecting the settlement of accounts between traders or between traders and their clients.

  • Problems arising from the piecemeal distribution of funds following the dissolution of partnership businesses.

  • Problems with account settlement where money advanced is to be received in a series of payments due on separate dates.

4. What is the due date?

In the commercial environment, the due date refers to the most recent payment made on debt or an invoice before it becomes overdue. These deadlines appear in a variety of scenarios in the business world. However, it usually comes down to when a payment is completed before it is late. Invoices, credit card payments, and loan payments all have due dates. These are the dates that indicate when payment is expected and can result in a variety of penalties if the payment is not made by the due date. Although due dates may appear arbitrary, there are usually definite criteria as to when they occur and what follows afterwards.

5. How can I download the required study material for the Concept of Average Due Date in Commerce?

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