How to use the payment terms cash impact calculator
Moving a supplier from net 30 to net 60 leaves that money in your account for another month. Enter annual purchases from the supplier along with the current and proposed terms, and this calculator shows how much cash the change frees up and what that cash is worth in interest over a year.
The math is simple. Annual purchases divided by 365 gives average daily purchases, and multiplying that by the payment days gives the accounts payable balance you carry at any moment. Subtracting the current balance from the new one gives the change in cash on hand: positive when you extend terms, negative when you shorten them. Multiplying by your cost of capital gives the annual interest effect, and since that rate differs by company, enter your actual borrowing rate or the return you would earn on the cash elsewhere.
Longer terms are not automatically a win. You may give up an early payment discount, accept a higher unit price, or strain a supplier whose own cash position is tight. This calculator covers only the cash effect of changing the payment date; price increases and forgone discounts are not included.
Frequently asked questions
Payment terms are quoted in days, so purchases have to be converted to a daily figure for the multiplication to line up. This page uses a single 365-day year throughout and never switches to 30-day months.
Shorten the terms, take the absolute value of the annual interest effect, and compare it with the discount the supplier is offering. If the discount is larger, paying early comes out ahead.