# Interest accrual: day counts and payment dates

Canonical: https://commercialdebtadvisory.com/structure/interest-accrual-day-count-and-payment-date-conventions/
Status: Published
Publisher: Jaken Finance Group

Interest accrual and payment scheduling answer different questions. Accrual determines how much interest accumulates over a defined period. Payment scheduling determines when funds must arrive. A business-day adjustment to the payment date does not necessarily add or remove accrual days, and an annual coupon divided by twelve may not reproduce an actual-day invoice.

Before comparing loan costs, write down the principal balance, annual rate, day-count basis, start and end dates, inclusion rule, rounding rule and payment due date. If any of these changes within the period, split the calculation at the change. A spreadsheet with one “monthly interest” formula can conceal differences that matter at closing, payoff or a rate reset.

## Use the convention named in the agreement

The [New York Fed's methodology](https://www.newyorkfed.org/markets/reference-rates/additional-information-about-reference-rates) uses actual calendar days and a 360-day year for its SOFR averages and index. That description does not impose a convention on every commercial loan. The loan's own provisions remain the source for its accrual calculation.

The [June 1, 2022 Block 40 agreement](https://www.sec.gov/Archives/edgar/data/1795851/000166357726000199/ex10_30.htm), Sections 2.2.3 and 2.3.2, illustrates separate rules for accrual and payment timing. Its specific rules should not be imported into another transaction.

For simple interest at a fixed balance, actual/360 means principal × annual rate × actual days ÷ 360. Actual/365 fixed uses 365 in the denominator, including in a leap year. Other actual/actual conventions are different again. For 30/360, identify the precise variant and its end-of-month rules; “thirty days” is insufficient documentation for every stub period.

## Worked exhibit: the same rate, different months

Assume $3 million outstanding at a constant 6% annual rate. Use simple interest, no principal payments and intervals that include the start date and exclude the end date. Dates below are calendar dates, not business-day-adjusted payment dates. Round only each final interest amount to cents.

| Accrual interval | Actual days | Actual/360 | Actual/365 fixed |
|---|---:|---:|---:|
| January 1 to February 1, 2027 | 31 | $15,500.00 | $15,287.67 |
| February 1 to March 1, 2027 | 28 | $14,000.00 | $13,808.22 |
| February 1 to March 1, 2028 | 29 | $14,500.00 | $14,301.37 |

For a full non-leap 365-day year, actual/360 interest is $182,500. Actual/365 fixed interest is $180,000. Dividing $182,500 by the principal gives a 6.0833% simple cash-interest proportion for that year. It is not an effective annual yield with compounding and it excludes fees.

A modeled 30/360 schedule with twelve complete 30-day interest periods gives $15,000 each period and $180,000 for the year. The rate label remains 6% in every case. The calendar and denominator explain the difference; no rate increase is necessary.

## Balance changes require their own intervals

Assume a separate 30-day actual/360 period at 6%. Principal is $3 million for the first ten days and $2.5 million for the next twenty days after an effective paydown. Interest is $3 million × 6% × 10/360 plus $2.5 million × 6% × 20/360, or $13,333.33.

Using the opening balance for all thirty days would produce $15,000; using the ending balance would produce $12,500. Neither reproduces the assumed daily balance history. Confirm the paydown's effective date and whether the documents require interest through a later date, a minimum period or another payoff adjustment before treating the daily-balance result as the amount owed.

Apply the same method to advances. A construction draw can raise principal partway through a month. If interest is financed by a reserve advance, determine when that advance enters the balance. Do not assume month-end posting when the actual records show another date.

## Keep the due-date rule beside the accrual rule

Consider a hypothetical invoice covering April 1 through April 30, 2027, with a nominal payment date of May 1. May 1 is a Saturday. If the agreement requires payment on the preceding business day, the payment may be due April 30 while still covering the full specified thirty-day period. If another agreement uses a following-business-day rule, the due date may move differently. Neither example authorizes changing the accrual period without reading its clause.

A payment cutoff and time zone can also matter. Record the receiving institution's requirement and confirm cleared receipt, especially for payoff wires. Do not use a holiday assumption from a generic calendar when the agreement defines business days by named banking centers or systems.

## Reconcile a statement without masking the difference

Start with a line-by-line calculation from the documented balance events and rates. Compare it with billed interest before adding escrows, fees or principal. Then reconcile rounding: daily rounded interest and one final rounded period amount can differ by cents, particularly across many days.

Keep the discrepancy visible until its cause is identified. A useful audit note states the exact dates, count, rate, balance and rounding treatment, followed by the lender's response. For a payoff, obtain a current statement with a good-through date and per-diem instructions rather than extending an old invoice mechanically. Accurate arithmetic supports the discussion; the contract and current account status determine the payment obligation.


## Source references
- [New York Fed — reference-rate methodology](https://www.newyorkfed.org/markets/reference-rates/additional-information-about-reference-rates) — SOFR Averages and Index: day-count convention · Checked 2026-10-21 · Benchmark methodology; does not prescribe every loan convention.
- [SEC-filed Block 40 loan agreement, June 1, 2022](https://www.sec.gov/Archives/edgar/data/1795851/000166357726000199/ex10_30.htm) — Sections 2.2.3 and 2.3.2 · Checked 2026-10-21 · Historical agreement, not a nationwide convention.