Why do payment terms matter?
Payment terms determine how long the buyer retains cash before paying the supplier. An extension normally improves buyer cash flow, while shorter terms tie up more working capital.
Calculate the financing effect
Multiply released working capital by the annual financing rate to estimate yearly value. Always compare the benefit with price changes or lost early-payment discounts.
Example
With annual spend of 12,000,000, moving from 30 to 60 days releases approximately 986,000 in working capital. At a 6% financing rate, that is worth roughly 59,000 per year.
Negotiate the complete package
The supplier’s financing cost, credit risk and cash flow are also affected. Assess price, payment schedule, advances, currency, supply risk and supplier financial strength together.
Calculate your own scenario
Use the free PurchaseKPI calculator and get the result immediately.
Payment terms calculator