# Supplier Payment Terms Extension Cash Value Calculator

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

## Short answer

Converts a longer days payable outstanding into released cash, annual financing savings and the maximum price increase worth accepting in exchange.

## Category

cost-finance

## Industry

Discrete Manufacturing

## Audience

- CFO
- Treasurer
- Procurement director

## Tool

**Kind:** calculator

**Currency:** $

**Inputs:**

#### Annual spend with affected suppliers

**Key:** spend

**Type:** number

**Default:** 24000000

**Min:** 0

**Step:** 100000

**Unit:** $

#### Current payment terms (days)

**Key:** dpo_now

**Type:** number

**Default:** 40

**Min:** 0

**Max:** 180

**Step:** 1

**Unit:** days

**Help:** Weighted actual days to pay, not just contract terms.

#### Proposed payment terms (days)

**Key:** dpo_new

**Type:** number

**Default:** 75

**Min:** 0

**Max:** 180

**Step:** 1

**Unit:** days

#### Cost of capital (annual)

**Key:** cost

**Type:** number

**Default:** 8

**Min:** 0

**Max:** 40

**Step:** 0.5

**Unit:** %

**Help:** Your revolver rate or the rate on cash, whichever you would actually save or earn.

#### Price increase supplier requests

**Key:** premium

**Type:** number

**Default:** 0.5

**Min:** 0

**Max:** 10

**Step:** 0.1

**Unit:** %

**Help:** Set to 0 if the extension is free.

**Outputs:**

#### Working capital released

**Key:** cash

**Expr:** spend / 365 * (dpo_new - dpo_now)

**Format:** currency

**Primary:** true

#### Annual financing benefit

**Key:** benefit

**Expr:** cash * cost / 100

**Format:** currency

#### Annual cost of requested price increase

**Key:** prem_cost

**Expr:** spend * premium / 100

**Format:** currency

#### Net annual benefit (positive = worth it)

**Key:** net

**Expr:** benefit - prem_cost

**Format:** currency

**Primary:** true

#### Break-even price increase

**Key:** be_prem

**Expr:** benefit / spend * 100

**Format:** percent

**Description:** Any price increase below this still leaves you better off.

#### Supplier's annualized cost of the extension if they fund it at your rate

**Key:** supplier_cost

**Expr:** if(gt(cash, 0), prem_cost / cash * 100, 0)

**Format:** percent

**Description:** Price premium divided by cash they finance; compare with their own borrowing cost.

**Chart:**

#### Net annual benefit vs proposed payment terms

**Type:** line

**X:** dpo_new

**From:** 30

**To:** 120

**Steps:** 30

**Series:**

- benefit
- net

**Disclaimer:** Excludes lost early payment discounts, supply chain finance program fees, and any supplier risk from stretching small vendors. Spend is treated as evenly spread across the year.

## Content

**Intro:** Moving from net 40 to net 75 across a large supplier base releases real cash, but suppliers will ask for something back. This calculator values the extension and tells you the highest price increase you should accept.

**Sections:**

#### How to use it

**Body:** Enter annual spend with the suppliers you plan to approach, their current weighted days to pay, the proposed terms, and your cost of capital. Add any price increase they request. The tool shows the cash released, the yearly financing benefit, the cost of the price increase, the net, and the break-even increase. Use the chart to see how the benefit grows with each added day of terms.

#### The method behind it

**Body:** Cash released = annual spend / 365 x change in days. Financing benefit = cash released x cost of capital. A price increase is a recurring cost on the entire spend, so it must be below the financing benefit divided by spend to pay off.

**Bullets:**

- Each extra day is worth about spend / 365 in cash.
- Compare to an early-pay discount: 2/10 net 30 is worth far more than 8 percent cost of capital.
- Supply chain finance can let suppliers get paid early while you pay late.
- Focus on high spend, low supplier risk categories first.

#### Common mistakes

**Body:** Teams often use contract terms rather than actual days to pay, overstate cash by applying the change to spend that is already on long terms, or forget that cutting early payment discounts has a high implicit cost. Also consider supplier health: stretching a small machine shop or a sole-source casting supplier can threaten delivery and quality. Include a risk review and reflect AP aging in your ERP before announcing the change.

**Cta:** We can help extract actual days to pay by vendor from your ERP AP ledger so the negotiation list is based on real numbers.

**Faq:**

#### Is stretching terms always beneficial?

**Answer:** Only if the financing benefit exceeds any price increase, lost discounts and supply risk. For critical or small suppliers the risk can outweigh the cash. Segment suppliers by spend and criticality before approaching them.

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

**Answer:** Use the rate you would actually save: your revolver rate if you are borrowing, or the yield on cash if you are cash positive. Using a WACC overstates the benefit for a company with idle cash.

#### How does this compare to a 2/10 net 30 discount?

**Answer:** Skipping a 2 percent discount to pay at day 30 instead of day 10 costs about 37 percent annualized. Always take such discounts before pursuing longer terms with the same supplier.

#### Does it affect reported DPO?

**Answer:** Yes. Higher payables lower the cash conversion cycle and may improve reported working capital metrics. Auditors and lenders may ask about reverse factoring programs, so disclose them appropriately.

## Search terms

payment terms extension calculator, DPO extension cash release, net 30 to net 60 working capital benefit, days payable outstanding improvement value, supplier terms negotiation break even price, accounts payable terms financing benefit, working capital payables calculator

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