# Payment Terms Extension Working Capital Calculator

> Source: https://netray.co/tools/payment-terms-extension-working-capital-calculator
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Free Tools

## Short answer

Value moving a supplier from Net 30 to Net 60 or 90 as cash released and annual financing benefit, then see the price premium that would wipe it out.

## Category

cost-finance

## Audience

- Buyer
- Procurement director
- Controller

## Tool

**Kind:** calculator

**Currency:** $

**Inputs:**

#### Annual spend with the supplier

**Key:** spend

**Type:** number

**Default:** 3000000

**Min:** 0

**Step:** 50000

**Unit:** $

#### Current payment term

**Key:** cur_days

**Type:** number

**Default:** 30

**Min:** 0

**Max:** 180

**Step:** 5

**Unit:** days

#### Proposed payment term

**Key:** new_days

**Type:** slider

**Default:** 60

**Min:** 0

**Max:** 180

**Step:** 5

**Unit:** days

#### Your cost of capital

**Key:** wacc

**Type:** number

**Default:** 9

**Min:** 0

**Max:** 30

**Step:** 0.5

**Unit:** %

**Help:** Borrowing rate or WACC your finance team uses.

#### Price premium the supplier asks for

**Key:** premium

**Type:** number

**Default:** 0.5

**Min:** 0

**Max:** 10

**Step:** 0.1

**Unit:** %

**Help:** Any price increase accepted in exchange for the longer term.

**Outputs:**

#### Spend per day

**Key:** daily

**Expr:** spend / 365

**Format:** currency

#### Cash released (one time)

**Key:** cash_release

**Expr:** daily * (new_days - cur_days)

**Format:** currency

**Primary:** true

**Description:** Additional average payables balance.

#### Annual financing benefit

**Key:** carry_value

**Expr:** cash_release * wacc / 100

**Format:** currency

#### Annual cost of the price premium

**Key:** premium_cost

**Expr:** spend * premium / 100

**Format:** currency

#### Net annual benefit

**Key:** net

**Expr:** carry_value - premium_cost

**Format:** currency

**Primary:** true

#### Breakeven price premium

**Key:** be_premium

**Expr:** carry_value / spend * 100

**Format:** decimal

**Description:** Premium in percent at which the extension stops paying.

**Chart:**

#### Financing benefit and net benefit vs proposed term

**Type:** line

**X:** new_days

**From:** 0

**To:** 180

**Steps:** 37

**Series:**

- carry_value
- net

**Disclaimer:** Does not model supplier financing cost, supply-chain finance programs or early payment discounts you may lose. Confirm legal limits on payment terms in your jurisdiction.

## Content

**Intro:** Longer payment terms are free cash, unless the supplier raises the price to compensate. This calculator values the extra days at your cost of capital and tells you the premium at which the deal breaks even.

**Sections:**

#### How to use it

**Body:** Enter annual spend with the supplier, the current and proposed terms in days, and your cost of capital. If the supplier wants a price increase for the longer term, enter it as a premium. The tool computes the one-time cash released, the annual financing benefit, and the net benefit after the premium. The chart sweeps the proposed term from zero to 180 days so you can see how value grows linearly with days while the premium cost stays fixed.

#### The method

**Body:** Daily spend is annual spend divided by 365. Cash released is daily spend times the extra days, which equals the rise in average accounts payable. The financing benefit is that cash times your cost of capital. Breakeven premium is the financing benefit divided by annual spend. At 9 percent cost of capital, each extra 30 days is worth roughly 0.74 percent of spend, which is a quick rule of thumb for evaluating asks.

**Bullets:**

- Cash released = spend / 365 x extra days
- Benefit = cash released x cost of capital
- Breakeven premium = benefit / spend

#### Reading the result

**Body:** If the supplier asks for a premium below the breakeven, the extension pays; above it, you are better off paying earlier. Compare also with an early payment discount: two percent for paying ten days early instead of net 30 has an annualized return near 36 percent, which beats almost any cost of capital. In that case, shortening the term and taking the discount may win over extending the term.

#### Common mistakes

**Body:** Do not treat released cash as a recurring annual saving: the balance is released once, and only its financing return recurs. Watch for terms measured from invoice date versus receipt date, which can differ by weeks. Check the payment run schedule too, since a Net 60 term paid in a weekly run on day 63 changes the math. ERP payment terms and payment run configuration should be reviewed together.

**Cta:** If you need payables by supplier and actual days paid pulled from your ERP into this analysis, Netray can set that up read-only.

**Faq:**

#### Is released cash a saving?

**Answer:** It is a one-time improvement in working capital. The recurring saving is only the financing return on that cash, such as interest avoided or earned. Report both separately to finance.

#### What cost of capital should I use?

**Answer:** Use the figure your finance team applies to working capital decisions. A short-term borrowing rate is common, and a weighted average cost of capital is used when funding is mixed.

#### Does this hurt the supplier?

**Answer:** Yes, it shifts financing cost to them, which is why they ask for a premium. Check supplier health first, and consider supply-chain finance if the supplier is small and strategic.

#### What about early payment discounts?

**Answer:** Compare the annualized return of the discount with your cost of capital. A discount such as 2/10 net 30 is usually worth taking if you have the cash.

## Search terms

payment terms extension calculator, net 60 vs net 30 value, days payable outstanding calculator, working capital release from supplier terms, extend payment terms savings, DPO improvement value, cost of capital payment terms

---
Talk to an engineer: https://netray.co/contact?intent=erp_ai | Machine catalog: https://netray.co/agent/catalog.json