Question on Interest for AR

Can someone confirm if the interest procedure looks at all open items for a range of customers and applies interest payable, in the form of a debit note to the customer, that could be printed and sent to them.

Or does it look at all of the cleared invoices against a customer, and work out the interest against the actual paid items. By this I mean if an invoice is paid, 20 days late, interest is calculated on the actual amount overdue, rather than for open items, which is at a given point in time.

the reason I ask is, I have a client asking for the first option, but what happens if say interest calcs are produced once a month and an invoice is overdue by say 50 days, the first month it would be 20 days and then the next month would it be 30 days or 50?

Any config notes would help as well.

Points will be awarded.