[Code of Federal Regulations]
[Title 5, Volume 3]
[Revised as of January 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 5CFR1315.17]

[Page 143-144]
 
                    TITLE 5--ADMINISTRATIVE PERSONNEL
 
              CHAPTER III--OFFICE OF MANAGEMENT AND BUDGET
 
PART 1315--PROMPT PAYMENT--Table of Contents
 
Sec. 1315.17  Formulas.

    (a) Rebate formula. (1) Agencies shall determine credit card payment 
dates based on an analysis of the total benefits to the Federal 
government as a whole. Specifically, agencies should compare daily basis 
points offered by the card issuer with the corresponding daily basis 
points of the government's Current Value of Funds (CVF) rate. If the 
basis points offered by the card issuer are greater than the daily basis 
points of the government'' funds, the government will maximize savings 
by paying on the earliest possible date. If the basis points offered by 
the card issuer are less than the daily basis points of the government'' 
funds, the government will minimize costs by paying on the Prompt 
Payment due

[[Page 144]]

date or the date specified in the contract.
    (2) Agencies may use a rebate spreadsheet which automatically 
calculates the net savings to the government and whether the agency 
should pay early or late. The only variables required for input to this 
spreadsheet are the CVF rate, the Maximum Discount Rate, that is, the 
rate from which daily basis points offered by the card issuer are 
derived, and the amount of debt. This spreadsheet is available for use 
on the prompt payment website at www.fms.treas.gov/prompt/index/.html.
    (3) If agencies chose not to use the spreadsheet, the following may 
be used to determine whether to pay early or late. To calculate whether 
to pay early or late, agencies must first determine the respective basis 
points. To obtain Daily Basis Points offered by card issuer, refer to 
the agency's contract with the card issuer. Use the following formula to 
calculate the average daily basis points of the CVF rate:

(CVF/360) * 100

    (4) For example: The daily basis points offered to agency X by card 
issuer Y are 1.5 basis points. That is, for every day the agency delays 
paying the card issuer the agency loses 1.5 basis points in savings. At 
a CVF of 5 percent, the daily basis points of the Current Value of Funds 
Rate are 1.4 basis points. That is, every day the agency delays paying, 
the government earns 1.4 basis points. The basis points were calculated 
using the formula:

(CVF/360) * 100
(5/360) * 100 = 1.4

    (5) Because 1.5 is greater than 1.4, the agency should pay as early 
as possible. If the basis points offered by the card issuer are less 
than the daily basis points of the government'' funds (if for instance 
the rebate equaled 1.3 basis points and the CVF was still 1.4 basis 
points or if the rebate equaled 1.5 but the CVF equaled 1.6), the 
government will minimize costs by paying as late as possible, but by the 
payment due date.
    (b) Daily simple interest formula. (1) To calculate daily simple 
interest the following formula may be used:

P(r/360*d)

Where:
P is the amount of principle or invoice amount;
r equals the Prompt Payment interest rate; and
d equals the numbers of days for which interest is being calculated.

    (2) For example, if a payment is due on April 1 and the payment is 
not made until April 11, a simple interest calculation will determine 
the amount of interest owed the vendor for the late payment. Using the 
formula above, at an invoice amount of $1,500 paid 10 days late and an 
interest rate of 6.5%, the amount of interest owed is calculated as 
follows:

$1,500 (.065/360*10) = $2.71

    (c) Monthly compounding interest formula. (1) To calculate interest 
as required in Sec. 1315.10(a)(3), the following formula may be used:

P(1+r/12) n*(1+(r/360*d))-P

Where:

P equals the principle or invoice amount;
r equals the interest rate;
n equals the number of months; and
d equals the number of days for which interest is being calculated.

    (2) The first part of the equation calculates compounded monthly 
interest. The second part of the equation calculates simple interest on 
any additional days beyond a monthly increment.
    (3) For example, if the amount owed is $1,500, the payment due date 
is April 1, the agency does not pay until June 15 and the applicable 
interest rate is 6 percent, interest is calculated as follows:

$ 1,500(1+.06/12)\2\ *(1+(0.06/360*15))-$1,500 = $18.83