Supplier Payment Terms Extension Cash Value Calculator
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.
Your numbers
Weighted actual days to pay, not just contract terms.
Your revolver rate or the rate on cash, whichever you would actually save or earn.
Set to 0 if the extension is free.
Your results
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.
Net annual benefit vs proposed payment terms
Sweeps Proposed payment terms (days) from 30 to 120, holding your other inputs fixed.
AP terms analysis from ERP data
Optional: discuss a vendor-level report of actual days to pay and terms exposure.
Optional. The tool and every export work without this. No spam.
How to use it
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
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.
- 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
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.
Frequently Asked Questions
Is stretching terms always beneficial?
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?
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?
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?
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.
We can help extract actual days to pay by vendor from your ERP AP ledger so the negotiation list is based on real numbers.
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