Supplier Payment Terms Extension Cash Benefit Calculator
Moving a supplier from net 30 to net 60 looks like free working capital, but the supplier funds that gap, usually at a higher rate than you. This calculator shows both sides so you can ask for longer terms without handing the supplier a reason to raise prices.
Your numbers
Often higher than yours, especially for small suppliers.
Your results
Simplified interest-rate model. Early-payment discounts, supply chain finance programs and tax effects are not included.
Your benefit vs supplier cost by proposed terms
Sweeps Proposed payment terms from 30 to 120, holding your other inputs fixed.
Payment terms analytics from your ERP
Optional: discuss a view of terms, DPO and discount capture by supplier using your own AP data.
Optional. The tool and every export work without this. No spam.
How to use it
Enter annual spend with the supplier and the current and proposed payment terms in days. Use your weighted average cost of capital or your revolver rate for your side, and a reasonable estimate of the supplier's borrowing cost for theirs. Small manufacturers often pay 12 to 20 percent on working capital lines. The result shows the one-time cash released, your annual benefit and the supplier's cost.
- Use terms measured from invoice date, not receipt date
- Use your marginal borrowing rate, not an average
- Treat supplier rate as a range and test both ends
- Check whether the supplier already uses factoring
The formulas
Cash released is annual spend divided by 365, times the extra days. The annual financing benefit is that cash times your cost of capital. The same cash times the supplier's rate is the cost the supplier absorbs. Dividing the supplier's cost by annual spend gives the price increase that would exactly compensate them. If their cost exceeds your benefit, the extension is a net loss for the supply chain even though it improves your balance sheet.
Reading the result
With the defaults, extending by 30 days releases about $197,000 and is worth roughly $17,700 a year to you, while it costs the supplier about $27,600. The supplier may ask for a 1.2 percent price rise, which would wipe out your gain. The chart shows the benefit and cost lines diverging as terms lengthen. Alternatives include dynamic discounting or supply chain finance, where your credit rating lowers the supplier's cost.
Common mistakes
Treating the cash release as a recurring saving is wrong; it is a one-time gain, and only the financing benefit repeats each year. Forcing terms on a small, critical supplier can create quality or delivery problems that cost more than the interest saved. Also check local regulations: some countries cap payment terms for small suppliers, such as MSME rules in India. Confirm limits before proposing new terms.
Frequently Asked Questions
Is extending payment terms always good?
No. It helps your cash flow, but it moves financing cost to the supplier, who may recover it through price, reduced service or lower priority. The net effect depends on the difference between your cost of capital and theirs.
What is the difference between DPO and payment terms?
Payment terms are the contractual days. Days payable outstanding is the average days you actually take to pay, computed from payables balance and spend. Paying late raises DPO but damages supplier trust and may breach terms.
How do I pick the supplier's financing rate?
Ask for it indirectly, or use typical small business line of credit rates in their country. If the supplier uses factoring, the effective annual cost is often much higher than a bank line, which strengthens the case for a finance program.
Does this include early-payment discounts?
No. A 2 percent discount for paying 20 days early has an annualized return well above most interest rates. Compare that separately with the benefit of longer terms before choosing a strategy.
Netray can help report days payable and payment terms by supplier from your ERP, so you can target extensions where the supplier can afford them.
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