What is the true cost of Net 30 payment terms?

At 8% cost of capital, a $10,000 invoice on Net 30 costs ~$66 in carrying costs. Seems small, but compounds across hundreds of invoices monthly.

How do payment terms cause margin leakage?

Payment terms create hidden carrying costs most distributors don't track. Extending Net 60 or Net 90 means providing free financing while paying your own cost of capital.

Should I offer early payment discounts like 2/10 Net 30?

A 2/10 Net 30 discount equates to 36.7% annual interest rate—expensive. Only offer if your cost of capital exceeds this, or if cash flow matters more than margin.

What cost of capital should I use?

Use your borrowing rate (line of credit, typically 6-12%) or opportunity cost of deploying capital elsewhere. Most distributors should use 6-10%.

How much do payment terms cost annually?

A distributor with 500 invoices/month averaging $8,000 on Net 45 at 8% capital cost carries ~$395K in annual carrying costs.

When should I tighten payment terms?

When carrying costs exceed 1% per invoice, customers consistently pay late, or working capital is constrained. Moving Net 60 to Net 30 cuts carrying costs 50%.

What are standard B2B payment terms?

Net 30 is most common. Large customers negotiate Net 60-90. Some industries (food) use Net 21. Terms vary by customer size, relationship, and industry norms.

How do payment terms affect cash flow?

Extended terms lock up working capital. If you offer Net 60 but suppliers require Net 30, you finance 30 days out of pocket across your entire order book.

What is the annualized cost of early payment discounts?

2/10 Net 30 = 36.7% APR. 1/10 Net 30 = 18.3% APR. 2/10 Net 60 = 14.7% APR. Compare these rates to your actual cost of capital.

How do I negotiate better payment terms with customers?

Offer small discounts for shorter terms, require deposits on large orders, set different terms by customer tier, and review terms at contract renewal.

Payment Terms Calculator

Calculate the true cost of offering payment terms. Most distributors don't track this—it's one of the most common sources of hidden margin leakage.

Enter Your Data

Enter invoice details to calculate payment terms cost

Industry Benchmarks: Payment Terms

These show typical payment terms (in days) by distribution industry. Larger customers negotiate longer terms, increasing your carrying costs.

Industry	Low	Average	High
Electrical Distribution	30%	35%	45%
HVAC Distribution	30%	45%	60%
Building Materials	30%	30%	30%
Industrial Supplies	45%	50%	60%
Food Distribution	21%	25%	30%
Chemical Distribution	30%	38%	45%

How to Use the Payment Terms Calculator

Step-by-Step Instructions

Enter the invoice amount
Enter payment terms in days (30, 60, 90)
Enter your annual cost of capital (borrowing rate or opportunity cost)
Optionally enter early payment discount percentage to compare costs

Formulas Used

Carrying Cost

Carrying Cost = Invoice × (Cost of Capital / 365) × Payment Days

The dollar cost of financing an invoice for the payment period.

Annualized Cost

Annual Cost = Monthly Carrying Cost × 12

Total carrying cost if this invoice pattern repeats monthly.

Early Payment Discount APR

APR = (Discount % / (100 - Discount %)) × (365 / (Full Terms - Discount Terms))

The annualized interest rate equivalent of an early payment discount. 2/10 Net 30 = 36.7% APR.

Frequently Asked Questions: Payment Terms Calculator

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