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Payment Terms Calculator

What is This Software?

The Payment Terms Calculator is a sophisticated financial analysis tool designed to help businesses make informed decisions about payment arrangements with suppliers. Whether you’re negotiating payment terms, comparing multiple supplier proposals, or analyzing the financial impact of different payment schedules, this tool provides you with clear, actionable insights.

At its core, this calculator helps you understand the true cost of money over time. When you agree to pay a supplier at different intervals—some immediately, some in 30 days, some in 60 days—the timing of those payments has real financial value. This tool calculates that value using fundamental financial principles, allowing you to compare different payment arrangements objectively and choose the option that maximizes your company’s financial position.

Key Terminology (Glossary)

WACC (Weighted Average Cost of Capital)

  • This represents your company’s annual cost of obtaining money from all sources—both loans (debt) and investments (equity). Think of it as the “interest rate” your company pays to use money. It’s expressed as an annual percentage. For example, if your WACC is 8%, it means your company effectively pays 8% per year to use capital. This is crucial because money you pay today is worth more than the same amount paid later—you could have invested that money and earned returns.

Period (Days)

  • This is the number of days between payment installments in your payment schedule. If you’re setting up payments at 0 days, 30 days, and 60 days, your period would be 30 days. This field is required and must be greater than zero for the calculator to function properly.

Day Rate

  • This is your WACC converted to a daily rate. Since WACC is annual, the system divides it by the number of days in the year to determine how much the cost of capital compounds each day. This daily rate is essential for calculating how much future payments are worth in today’s dollars.

Period Day Rate

  • This represents the total cost of capital accumulated over your specified period. It’s calculated by multiplying the Day Rate by the number of days in your period. This helps you understand the financial impact of delaying payments by your period length.

Discount Factor

  • This is a multiplier that converts future payment amounts into their present-day equivalent value. A discount factor less than 100% means future money is worth less than money today, accounting for the time value of money and your cost of capital.

Purchase Order Amount

  • This is the total dollar value of the purchase order or invoice you’re analyzing. This is the full amount you owe, which will be split across multiple payment installments according to your payment schedule.

Payment Plan

  • A payment plan represents a complete payment arrangement proposal, typically from one supplier. Each plan has a name (like “Supplier A” or “Acme Corporation”) and contains one or more payment options that together make up the full payment schedule.

Payment Option

  • A single installment within a payment plan. Each option specifies when the payment occurs (in days from today) and what percentage of the total purchase order amount is paid at that time. For example, you might have one option paying 30% immediately (0 days) and another paying 70% in 30 days.

Payment Days

  • The number of days from today when a specific payment installment is due. Zero days means payment is due immediately. Thirty days means payment is due one month from today, and so on.

Payment Percentage

  • The portion of the total purchase order amount that is paid at a specific installment. All payment percentages within a single payment plan must add up to exactly 100%. For example, if you pay 40% immediately and 60% in 30 days, those percentages sum to 100%.

Future Value (FV)

  • The actual dollar amount that will be paid at a specific future date. This is calculated by multiplying the Purchase Order Amount by the Payment Percentage for that installment. For example, if your purchase order is $10,000 and one payment option is 30%, the Future Value is $3,000.

Net Present Value (NPV)

  • The present-day equivalent value of a future payment, accounting for the time value of money. Because money today is worth more than the same amount in the future (due to your cost of capital), future payments are “discounted” to their present value. NPV tells you what that future payment is truly worth to you today, considering you could have invested that money and earned returns.

Total Present Value

  • The sum of all Net Present Values for all payment installments in a payment plan. This represents the true cost of the entire payment arrangement in today’s dollars. Lower Total Present Value means a better financial deal for your company.

Best Value

  • When comparing multiple payment plans, the system identifies which plan has the lowest Total Present Value. This plan is marked as “Best Value” because it represents the payment arrangement that costs your company the least in present-day terms.

The “Why”: Benefits of Using This Tool

Objective Financial Decision-Making

  • Instead of relying on intuition or simple comparisons of payment amounts, this tool provides mathematical precision. You can confidently compare different supplier proposals knowing that all calculations account for the time value of money and your company’s actual cost of capital.

Negotiation Power

  • Armed with precise financial analysis, you can negotiate payment terms from a position of knowledge. You’ll understand exactly how much different payment arrangements cost your company, allowing you to make informed counter-proposals or choose suppliers based on total financial impact, not just upfront costs.

Time Savings

  • Manual calculations involving time value of money, discount factors, and multiple payment scenarios are complex and error-prone. This tool performs all calculations instantly and accurately, saving hours of spreadsheet work and eliminating calculation errors.

Multiple Scenario Analysis

  • You can create and compare multiple payment plans simultaneously, seeing side-by-side how different arrangements impact your finances. This is invaluable when evaluating multiple suppliers or negotiating different terms with a single supplier.

Financial Optimization

  • By identifying the payment plan with the lowest Total Present Value, the tool helps you minimize your company’s true cost of capital. Even small differences in payment timing can result in significant savings over time, especially for large purchase orders.

Educational Value

  • Using this tool helps you develop a deeper understanding of how payment timing affects your company’s finances. You’ll learn to think about money in terms of present value, not just nominal amounts, which is a fundamental principle of corporate finance.

Interface Overview

Main Dashboard Layout

The Payment Terms Calculator is organized into distinct sections that guide you through the analysis process step by step. The interface is designed to be intuitive, with clear visual separation between input fields, calculated values, and results.

Section 1: Additional Information Card

This is the first card you’ll encounter, located at the top of the calculator. It contains all the foundational inputs and calculated metrics needed for your analysis.

WACC Input Field

  • Location: First field in the top row
  • Purpose: Enter your company’s annual Weighted Average Cost of Capital
  • Format: Enter as a percentage number (e.g., type “8.5” for 8.5%, not “8.5%”)
  • Acceptable Values: Any number from 0 to 100
  • Behavior: You can enter decimal values (e.g., 7.25 for 7.25%). The field accepts only numeric input and decimal points.
  • Visual Indicator: An information icon (ℹ️) appears next to the label. Hovering over it displays a tooltip explaining what WACC represents.
  • Placeholder Text: ”% annual” reminds you to enter an annual percentage rate.

Period (Days) Input Field

  • Location: Second field in the top row
  • Purpose: Specify the number of days between payment installments
  • Format: Enter as a whole number (e.g., “30” for 30 days)
  • Acceptable Values: Any positive whole number greater than zero
  • Required Field: This field is mandatory—you must enter a value greater than zero before you can proceed with payment plan analysis
  • Visual Indicator: An asterisk (*) appears next to the label, indicating it’s required. An information icon provides additional context.
  • Placeholder Text: “number of days” guides you on what to enter
  • Important Note: Once you enter a period value and create payment plans with multiple installments, changing the period will automatically update all payment options (except the first one) to use the new period value.

Day Rate Display Field

  • Location: Third field in the top row
  • Purpose: Shows the calculated daily cost of capital rate
  • Format: Displays as a percentage with two decimal places (e.g., “0.02%”)
  • Behavior: This field is read-only (disabled) and automatically calculates based on your WACC input
  • Calculation: The system divides your annual WACC by 100, then divides by the number of days in the current year (365 or 366)
  • Visual Styling: The field has a muted background color to indicate it’s calculated, not editable
  • Visual Indicator: An information icon explains that this is calculated from WACC divided by days in year

Period Day Rate Display Field

  • Location: Fourth field in the top row
  • Purpose: Shows the total cost of capital accumulated over your specified period
  • Format: Displays as a percentage with two decimal places
  • Behavior: Read-only, automatically calculated
  • Calculation: Multiplies the Day Rate by your Period (Days) value
  • Visual Styling: Muted background indicates it’s a calculated field
  • Visual Indicator: Information icon explains this is Day Rate multiplied by Period Days

Discount Factor Display Field

  • Location: First field in the second row (if displayed in a grid)
  • Purpose: Shows the discount factor used to convert future payments to present value
  • Format: Displays as a number (typically between 90 and 100)
  • Behavior: Read-only, automatically calculated
  • Calculation: Calculated using the formula: (1 / (1 + dayRate)) × 100
  • Visual Styling: Muted background
  • Visual Indicator: Information icon explains this is the discount factor from Day Rate

Section 2: Payment Terms Suppliers Card

This card appears only after you’ve entered a Period value greater than zero. It contains the core functionality for creating and managing payment plans.

Purchase Order Amount Input Field

  • Location: Prominently displayed in the card header area, below the “Payment Terms Suppliers” title
  • Purpose: Enter the total dollar amount of the purchase order or invoice you’re analyzing
  • Format: Enter numbers with or without commas (e.g., “10000” or “10,000” both work)
  • Acceptable Values: Any positive number
  • Behavior: The field automatically formats your input with thousand separators (commas) as you type. For example, typing “10000” displays as “10,000”
  • Visual Styling: This field has special styling—a thicker border, larger text, and a shadow effect to emphasize its importance
  • Placeholder Text: “Input amount…” guides you on what to enter
  • Important: Calculations for Future Value and Net Present Value only appear after you’ve entered a purchase order amount

Payment Plans Management Area

This section appears below the Purchase Order Amount field and contains several important elements:

Plan Management Buttons

  • Duplicate Plan Button: Creates an exact copy of the currently active payment plan. This is useful when you want to create a variation of an existing plan—you can duplicate it, then modify the copy. The duplicated plan will have “(copy)” appended to its name.
  • Add New Plan Button: Creates a brand new, empty payment plan. New plans are automatically named sequentially (Supplier A, Supplier B, Supplier C, etc.). The new plan becomes the active plan immediately after creation.

Plan Tabs

  • Each payment plan appears as a tab at the top of the payment plans section
  • Clicking a tab switches between different payment plans
  • The active tab is visually highlighted
  • Plan names are displayed on each tab
  • If a plan is identified as “Best Value” (lowest Total Present Value), a green “Best Value” badge appears on its tab

Plan Name Editor

  • Located within each plan’s tab content
  • Allows you to rename payment plans to meaningful names (e.g., “Acme Corporation” instead of “Supplier A”)
  • The input field is 240 pixels wide and accepts any text
  • Changing the name updates it immediately across the interface

Remove Plan Button

  • Appears only when you have more than one payment plan
  • Located to the right of the Plan Name input field
  • Clicking this button permanently deletes the selected payment plan
  • If you delete the currently active plan, the system automatically switches to the first remaining plan
  • You cannot delete the last remaining plan (you must always have at least one plan)

Payment Schedule Table

This is the heart of each payment plan, displaying all payment installments in a structured table format.

Table Header Row The header contains six columns:

  1. n: A column header indicating the payment installment number (0, 1, 2, etc.)
  2. Payment Days: The number of days from today when this payment is due
  3. Payment %: The percentage of total amount paid at this installment (with info icon)
  4. Future Value: The dollar amount that will be paid at this future date (with info icon)
  5. Net Present Value: The present-day equivalent value of this future payment (with info icon)
  6. Empty Column: Reserved for action buttons (delete payment option)

Table Body Rows Each row represents one payment installment and contains:

  • Installment Number (n): Displayed as 0, 1, 2, etc., indicating the sequence of payments
  • Payment Days Input: An editable field where you specify when this payment occurs. The first payment is typically 0 (immediate), and subsequent payments follow your period pattern
  • Payment % Input: An editable field where you enter what percentage of the total is paid at this installment. Values must be between 0 and 100
  • Future Value Display: Shows the calculated dollar amount (Purchase Order Amount × Payment Percentage). Displays as currency formatted with dollar signs and commas. Shows ”-” if no purchase order amount is entered
  • Net Present Value Display: Shows the present-day value of this future payment, accounting for time value of money. Displays as currency. Shows ”-” if no purchase order amount is entered
  • Delete Button: A trash icon button that removes this payment option. Disabled if there’s only one payment option remaining (you must always have at least one)

Table Footer Row Displays summary totals:

  • Totals Label: Indicates this row contains summary information
  • Total Payment %: Shows the sum of all payment percentages. This should equal 100% for a valid plan
  • Total Future Value: Shows the sum of all Future Values, which should equal your Purchase Order Amount
  • Total Present Value: Shows the sum of all Net Present Values, representing the true cost of this payment plan

Add Payment Button

  • Appears above the payment schedule table when your payment percentages don’t sum to 100%
  • Clicking this button adds a new payment option to your schedule
  • New payment options are automatically assigned the period days value
  • The system automatically adjusts the last payment option’s percentage to ensure totals reach 100%

Validation Alert

  • A red alert box appears if your payment percentages don’t sum to exactly 100%
  • The alert message states: “Payment percentages must sum to exactly 100%”
  • This alert disappears once you’ve corrected the percentages

Total Present Value Summary

  • Appears below the payment schedule table when:
    • Your payment plan is valid (percentages sum to 100%)
    • You have at least one payment plan
    • You’ve entered a purchase order amount greater than zero
    • You’ve entered a WACC greater than zero
  • Displays the Total Present Value in currency format
  • Shows the difference between Total Present Value and Purchase Order Amount in parentheses
  • The difference is color-coded: blue text indicates whether you’re saving or paying more compared to immediate full payment

Section 3: Payment Plans Comparison Table

This comparison table appears at the bottom of the Payment Terms Suppliers card when you have multiple payment plans, have entered a purchase order amount, and have entered a WACC value.

Table Structure The comparison table has four columns:

  1. Plan Column

    • Displays the name of each payment plan
    • If a plan is identified as “Best Value,” a green “Best” badge appears next to the name
    • The row for the best plan has a green border highlight

  2. Valid Column

    • Shows a green checkmark (✓) if the plan’s payment percentages sum to exactly 100%
    • Shows a red alert icon (⚠️) if the plan is invalid (percentages don’t sum to 100%)

  3. Total Present Value Column

    • For valid plans: Displays the Total Present Value in currency format
    • For invalid plans: Displays “Invalid plan” text

  4. Savings vs Purchase Amount Column

    • For valid plans: Shows the difference between Total Present Value and Purchase Order Amount
    • Positive values (savings) appear in green text with a ”+” prefix
    • Negative values (additional cost) appear in red text
    • Also displays the percentage difference in parentheses
    • For invalid plans: This column is empty

Purpose of Comparison Table This table allows you to quickly compare all your payment plans side-by-side, identifying which arrangement offers the best financial value. The visual highlighting of the “Best Value” plan makes it immediately clear which option to choose.

Comprehensive User Guide

Getting Started: Your First Calculation

Step 1: Enter Your WACC

  1. Locate the “WACC” field in the “Additional information” card at the top of the page
  2. Click in the input field
  3. Type your company’s annual WACC as a number (e.g., if your WACC is 8.5%, type “8.5”)
  4. You can use decimal values (e.g., “7.25” for 7.25%)
  5. Press Tab or click elsewhere to move to the next field
  6. Notice that the “Day Rate” field below automatically updates with the calculated daily rate

Step 2: Enter Your Period

  1. Locate the “Period (Days)” field—notice the asterisk (*) indicating it’s required
  2. Click in the input field
  3. Type the number of days between your payment installments (e.g., “30” for monthly payments)
  4. This must be a whole number greater than zero
  5. Press Tab or click elsewhere
  6. Notice that “Period Day Rate” and “Discount Factor” fields now display calculated values
  7. The “Payment Terms Suppliers” card should now appear below

Step 3: Enter Purchase Order Amount

  1. Locate the large “Purchase Order Amount” input field in the Payment Terms Suppliers card
  2. Click in the field
  3. Type the total dollar amount of your purchase order
  4. You can type with or without commas—the system will format it automatically (e.g., typing “10000” displays as “10,000”)
  5. Press Tab or click elsewhere
  6. The payment schedule table will now show calculated Future Value and Net Present Value columns

Step 4: Set Up Your First Payment Plan

  1. You’ll see a default payment plan named “Supplier A” with one empty payment option
  2. Click in the “Payment Days” field for the first payment option
  3. Enter “0” for immediate payment (or the number of days until first payment)
  4. Click in the “Payment %” field
  5. Enter the percentage you want to pay immediately (e.g., “30” for 30%)
  6. As soon as you enter a percentage greater than zero, the system automatically creates a second payment option
  7. The second payment option will have the period days value you entered earlier
  8. The second payment’s percentage will automatically be set to make the total 100% (e.g., if you entered 30%, the second becomes 70%)

Step 5: Review Your Results

  1. Look at the “Future Value” column to see the dollar amounts for each payment
  2. Look at the “Net Present Value” column to see the present-day value of each future payment
  3. Check the table footer to see:
    • Total Payment % (should be 100%)
    • Total Future Value (should equal your Purchase Order Amount)
    • Total Present Value (the true cost of this payment arrangement)
  4. Below the table, you’ll see a “Total Present Value” summary showing the overall cost and the difference from your purchase order amount

Creating Multiple Payment Plans

Scenario: Comparing Three Suppliers

You’re evaluating payment terms from three different suppliers and want to compare them objectively.

Creating the Second Payment Plan

  1. After setting up your first payment plan, locate the “Add New Plan” button above the plan tabs
  2. Click “Add New Plan”
  3. A new tab labeled “Supplier B” appears and becomes active
  4. This new plan starts with one empty payment option
  5. Set up the payment schedule for Supplier B following the same process as Step 4 above

Creating the Third Payment Plan

  1. Click “Add New Plan” again
  2. A third tab labeled “Supplier C” appears
  3. Set up this payment plan with Supplier C’s terms

Renaming Payment Plans

  1. Click on the tab of the plan you want to rename (e.g., “Supplier A”)
  2. Locate the “Plan Name” input field below the tabs
  3. Click in the field and type the actual supplier name (e.g., “Acme Corporation”)
  4. Press Tab or click elsewhere
  5. Notice the tab label updates to show the new name

Switching Between Plans

  1. Simply click on any plan tab to switch between payment plans
  2. Each plan maintains its own independent payment schedule
  3. You can edit any plan at any time by clicking its tab

Using the Comparison Table

  1. Once you have multiple valid payment plans with purchase order amount and WACC entered, scroll down
  2. You’ll see a “Payment Plans Comparison” table
  3. This table shows all your plans side-by-side with:
    • Whether each plan is valid (checkmark or alert icon)
    • Total Present Value for each plan
    • Savings or additional cost compared to immediate full payment
  4. The plan with the lowest Total Present Value is highlighted with a green border and marked with a “Best” badge
  5. Use this comparison to make your final decision

Adding Multiple Payment Installments

Scenario: Setting Up a Three-Installment Payment Plan

You want to pay 25% immediately, 35% in 30 days, and 40% in 60 days.

Method 1: Using the Add Payment Button

  1. Set up your first payment: Payment Days = 0, Payment % = 25
  2. The system automatically creates a second payment with 75% (to total 100%)
  3. Click the “Add Payment” button (appears when percentages don’t sum to 100%)
  4. A third payment option appears
  5. Edit the second payment: Change Payment Days to 30, Payment % to 35
  6. Edit the third payment: Change Payment Days to 60, Payment % to 40
  7. The system automatically adjusts percentages to ensure they total 100%

Method 2: Manual Entry

  1. Start with your first payment: Payment Days = 0, Payment % = 25
  2. Edit the automatically created second payment: Payment Days = 30, Payment % = 35
  3. Click “Add Payment” to create a third option
  4. Edit the third payment: Payment Days = 60, Payment % = 40
  5. The system ensures all percentages total 100%

Understanding Automatic Percentage Adjustment

  • When you edit a payment percentage (except the last one), the system automatically adjusts the last payment’s percentage
  • For example, if you have two payments and change the first from 30% to 40%, the second automatically changes from 70% to 60%
  • This ensures your payment plan always totals 100%
  • You can only directly edit the last payment’s percentage if you’re editing that specific field

Modifying Payment Schedules

Changing Payment Days

  1. Click in the “Payment Days” field for the payment option you want to modify
  2. Type the new number of days
  3. Press Tab or click elsewhere
  4. The Net Present Value automatically recalculates based on the new timing
  5. Note: If you change the Period value in the top section, all payment options (except the first) will automatically update to use the new period

Changing Payment Percentages

  1. Click in the “Payment %” field for the payment option you want to modify
  2. Type the new percentage (0 to 100)
  3. Press Tab or click elsewhere
  4. If you’re not editing the last payment, the last payment’s percentage automatically adjusts to maintain a 100% total
  5. Future Value and Net Present Value columns update automatically

Removing Payment Options

  1. Locate the payment option you want to remove
  2. Click the trash icon button in the rightmost column of that row
  3. The payment option is immediately removed
  4. The remaining payment percentages automatically adjust to total 100%
  5. Note: You cannot remove the last remaining payment option—you must always have at least one

Duplicating Payment Plans

Scenario: Creating a Variation of an Existing Plan

You have a payment plan from Supplier A and want to create a similar plan with slight modifications to compare.

Steps to Duplicate

  1. Click on the tab of the payment plan you want to duplicate (e.g., “Supplier A”)
  2. Locate the “Duplicate Plan” button above the plan tabs
  3. Click “Duplicate Plan”
  4. A new tab appears with the name “Supplier A (copy)”
  5. This new plan is an exact copy, including all payment options, days, and percentages
  6. The duplicated plan becomes the active plan automatically
  7. You can now modify this plan without affecting the original
  8. Rename it to something meaningful (e.g., “Supplier A - Alternative Terms”)

Use Cases for Duplication

  • Creating “what-if” scenarios with different payment percentages
  • Comparing the same supplier’s terms at different periods
  • Testing how small changes affect Total Present Value
  • Saving a baseline plan while experimenting with modifications

Understanding the Results

Reading the Payment Schedule Table

Each row in the payment schedule table provides detailed information about one payment installment:

Installment Number (n)

  • The first payment is numbered 0, the second is 1, the third is 2, and so on
  • This helps you identify the sequence of payments

Payment Days

  • Shows when this payment occurs relative to today
  • 0 = immediate payment (due today)
  • 30 = payment due 30 days from today
  • 60 = payment due 60 days from today

Payment Percentage

  • Shows what portion of the total purchase order is paid at this installment
  • All percentages in a plan should total 100%

Future Value

  • The actual dollar amount that will be paid at this future date
  • Calculated as: Purchase Order Amount × (Payment Percentage ÷ 100)
  • Example: If purchase order is $10,000 and payment percentage is 30%, Future Value is $3,000

Net Present Value

  • The present-day equivalent value of this future payment
  • Accounts for the time value of money using your WACC
  • Lower NPV means the payment costs less in today’s dollars
  • Payments due immediately (0 days) have NPV equal to Future Value (no discounting)
  • Future payments have NPV less than Future Value (they’re discounted)

Understanding Total Present Value

The Total Present Value shown in the table footer and summary section represents the true cost of the entire payment plan in today’s dollars. This is the sum of all Net Present Values for all payment installments.

Interpreting the Difference

  • If Total Present Value is less than Purchase Order Amount: You’re saving money compared to paying everything immediately. This happens when delayed payments are worth less in present value than their face value.
  • If Total Present Value equals Purchase Order Amount: The payment timing has no financial impact (rare, usually only when WACC is 0% or all payments are immediate).
  • The difference is shown in parentheses below the Total Present Value, color-coded for easy identification.

Using the Comparison Table

When you have multiple payment plans, the comparison table helps you make decisions:

Valid Column

  • Green checkmark: Plan is ready for comparison (percentages total 100%)
  • Red alert icon: Plan needs correction before it can be compared

Total Present Value Column

  • Compare these values across all plans
  • Lower values mean better financial deals
  • The plan with the lowest value is marked as “Best Value”

Savings vs Purchase Amount Column

  • Shows how much you save (green, positive) or pay extra (red, negative) compared to immediate full payment
  • The percentage shows the relative impact
  • Use this to understand the magnitude of savings or additional cost

Best Value Badge

  • The plan with the lowest Total Present Value receives a green “Best Value” badge
  • This plan’s row is highlighted with a green border
  • This is your recommended choice based on financial analysis

Advanced Scenarios

Scenario 1: Evaluating Early Payment Discounts

A supplier offers you 2% discount if you pay within 10 days, otherwise net 30.

Setting Up the Analysis

  1. Create two payment plans: “Early Payment” and “Standard Terms”
  2. For “Early Payment”: Payment Days = 10, Payment % = 100%
  3. For “Standard Terms”: Payment Days = 30, Payment % = 100%
  4. Enter your purchase order amount
  5. For the early payment plan, manually calculate: Purchase Order Amount × 0.98 (to account for 2% discount)
  6. Compare the Total Present Values

Interpreting Results

  • The comparison shows whether the 2% discount is worth paying early
  • Consider both the discount and the time value of money
  • The tool helps you make an objective decision

Scenario 2: Multi-Installment Negotiation

You’re negotiating with a supplier who proposed: 20% upfront, 30% in 30 days, 50% in 60 days. You want to counter-propose: 15% upfront, 25% in 30 days, 60% in 60 days.

Setting Up Both Proposals

  1. Create “Supplier Proposal” plan with the supplier’s terms
  2. Create “My Counter-Proposal” plan with your preferred terms
  3. Set Period to 30 days
  4. Enter payment schedules for both plans
  5. Compare Total Present Values

Using Results in Negotiation

  • If your counter-proposal has lower Total Present Value, you can present it as financially equivalent or better
  • If supplier’s proposal is better, you know what you’re giving up
  • Use the comparison to find a middle ground that works for both parties

Scenario 3: Seasonal Payment Planning

You have a large purchase order and want to spread payments across your fiscal year to manage cash flow.

Setting Up Seasonal Payments

  1. Determine your payment schedule (e.g., 25% quarterly)
  2. Calculate days between payments (approximately 90 days for quarterly)
  3. Set Period to 90 days
  4. Create payment options: 0 days (25%), 90 days (25%), 180 days (25%), 270 days (25%)
  5. Review Total Present Value to understand the cost of spreading payments

Cash Flow Management

  • Use the Future Value column to see when cash outflows occur
  • Use Total Present Value to understand the financial cost of delayed payments
  • Balance cash flow needs with financial optimization

The Logic “Under the Hood”

This section explains the mathematical principles and formulas the system uses to calculate results. Understanding these concepts helps you interpret the results and make better financial decisions.

Understanding Time Value of Money

The fundamental principle behind all calculations is the time value of money: money available today is worth more than the same amount in the future because you can invest it and earn returns. The Payment Terms Calculator uses this principle to determine the true cost of different payment arrangements.

Core Calculation: Day Rate

The system first converts your annual WACC into a daily rate. This is necessary because payment schedules operate on a daily timeline, not annual.

Formula: Day Rate=WACC100×Days in Year\text{Day Rate} = \frac{\text{WACC}}{100 \times \text{Days in Year}}

Explanation:

  • Your WACC is an annual percentage (e.g., 8% per year)
  • To find the daily rate, divide by 100 to convert to decimal (8% becomes 0.08)
  • Then divide by the number of days in the year (365 or 366, depending on leap years)
  • This gives you the cost of capital per day

Example: If your WACC is 8% and the year has 365 days:

Day Rate=8100×365=0.08365=0.0002192 (or 0.02192% per day)\text{Day Rate} = \frac{8}{100 \times 365} = \frac{0.08}{365} = 0.0002192 \text{ (or } 0.02192\% \text{ per day)}

Period Day Rate Calculation

The Period Day Rate shows the total cost of capital accumulated over your specified payment period.

Formula: Period Day Rate=Day Rate×Period Days\text{Period Day Rate} = \text{Day Rate} \times \text{Period Days}

Explanation:

  • Multiply the daily rate by the number of days in your period
  • This tells you how much the cost of capital compounds over that time period
  • Expressed as a percentage

Example: If Day Rate is 0.02192% and Period is 30 days:

Period Day Rate=0.02192%×30=0.6576%\text{Period Day Rate} = 0.02192\% \times 30 = 0.6576\%

Discount Factor Calculation

The Discount Factor is a multiplier that converts future payment amounts into their present-day equivalent value.

Formula: Discount Factor=11+Day Rate×100\text{Discount Factor} = \frac{1}{1 + \text{Day Rate}} \times 100

Explanation:

  • This formula calculates how much a dollar received one day in the future is worth today
  • The factor is always less than 100% (typically 99.97% to 99.99%)
  • Multiplied by 100 to express as a percentage for display purposes

Example: If Day Rate is 0.0002192:

Discount Factor=11+0.0002192×100=11.0002192×100=99.9781%\text{Discount Factor} = \frac{1}{1 + 0.0002192} \times 100 = \frac{1}{1.0002192} \times 100 = 99.9781\%

This means a dollar received tomorrow is worth 99.9781 cents today.

Future Value Calculation

Future Value represents the actual dollar amount that will be paid at a specific future date.

Formula: Future Value=Purchase Order Amount×Payment Percentage100\text{Future Value} = \text{Purchase Order Amount} \times \frac{\text{Payment Percentage}}{100}

Explanation:

  • Multiply the total purchase order amount by the payment percentage (converted to decimal)
  • This is straightforward: if you owe 10,000andpay3010,000 and pay 30% now, you pay 3,000

Example: If Purchase Order Amount is $10,000 and Payment Percentage is 30%:

Future Value=$10,000×30100=$10,000×0.30=$3,000\text{Future Value} = \$10,000 \times \frac{30}{100} = \$10,000 \times 0.30 = \$3,000

Net Present Value (NPV) Calculation

This is the core calculation that determines the present-day value of future payments, accounting for the time value of money.

Formula for payments with days > 0: NPV=Future Value(1+Day Rate)Payment Days\text{NPV} = \frac{\text{Future Value}}{(1 + \text{Day Rate})^{\text{Payment Days}}}

Formula for immediate payments (days = 0): NPV=Future Value\text{NPV} = \text{Future Value}

Explanation:

  • For future payments: Divide the Future Value by (1 + Day Rate) raised to the power of Payment Days
  • This “discounts” the future payment back to today’s value
  • The exponent (Payment Days) accounts for compounding—the longer you wait, the more the value decreases
  • For immediate payments: No discounting is needed, so NPV equals Future Value

Step-by-Step Example: Let’s calculate NPV for a $3,000 payment due in 30 days, with WACC of 8%:

  1. Calculate Day Rate: Day Rate=8100×365=0.0002192\text{Day Rate} = \frac{8}{100 \times 365} = 0.0002192

  2. Calculate NPV: NPV=$3,000(1+0.0002192)30\text{NPV} = \frac{\$3,000}{(1 + 0.0002192)^{30}} NPV=$3,0001.00659\text{NPV} = \frac{\$3,000}{1.00659} NPV=$2,980.35\text{NPV} = \$2,980.35

This means a $3,000 payment in 30 days is worth $2,980.35 today, considering your 8% cost of capital.

Why NPV is Lower Than Future Value:

  • Because of your cost of capital (WACC), money today is more valuable
  • If you had $2,980.35 today, you could invest it and earn returns
  • By the time 30 days pass, that investment would grow closer to $3,000
  • Therefore, receiving $3,000 in 30 days is equivalent to having $2,980.35 today

Total Present Value Calculation

Total Present Value sums all individual NPVs to find the true cost of an entire payment plan.

Formula: Total Present Value=∑i=1nNPVi\text{Total Present Value} = \sum_{i=1}^{n} \text{NPV}_i

Where:

  • nn = number of payment installments
  • NPVi\text{NPV}_i = Net Present Value of the ii-th payment

Explanation:

  • Add up the Net Present Value of every payment installment in the plan
  • This gives you the total amount the payment plan costs in today’s dollars
  • Lower Total Present Value means a better financial deal

Example: A payment plan with three installments:

  • Payment 1: $2,000 due immediately → NPV = $2,000.00
  • Payment 2: $3,000 due in 30 days → NPV = $2,980.35
  • Payment 3: $5,000 due in 60 days → NPV = $4,934.25

Total Present Value=$2,000.00+$2,980.35+$4,934.25=$9,914.60\text{Total Present Value} = \$2,000.00 + \$2,980.35 + \$4,934.25 = \$9,914.60

Even though you’re paying $10,000 total, the true cost in present value is $9,914.60—a savings of $85.40 compared to paying everything immediately.

Best Value Identification

The system identifies the payment plan with the lowest Total Present Value as “Best Value.”

Process:

  1. Calculate Total Present Value for each valid payment plan (percentages sum to 100%)
  2. Compare all Total Present Values
  3. Select the plan with the minimum (lowest) Total Present Value
  4. Mark that plan with “Best Value” badge and green highlighting

Mathematical Expression: Best Plan=arg⁡min⁡p∈Valid PlansTotal Present Valuep\text{Best Plan} = \arg\min_{p \in \text{Valid Plans}} \text{Total Present Value}_p

Explanation:

  • The system finds the plan pp among all valid plans that has the minimum Total Present Value
  • This plan represents the payment arrangement that costs your company the least in present-day terms

Understanding the Impact of WACC

Your WACC significantly impacts all calculations:

High WACC (e.g., 12%):

  • Higher Day Rate means money is more expensive
  • Future payments are discounted more heavily
  • Delayed payments become relatively more attractive (they cost less in present value)
  • Total Present Value differences between plans become more pronounced

Low WACC (e.g., 3%):

  • Lower Day Rate means money is less expensive
  • Future payments are discounted less
  • Timing differences have smaller financial impact
  • Plans may have similar Total Present Values

Zero WACC:

  • If WACC is 0%, Day Rate is 0%
  • No discounting occurs—all payments have NPV equal to Future Value
  • Total Present Value equals Purchase Order Amount
  • Payment timing has no financial impact (time value of money is zero)

Understanding the Impact of Payment Timing

The timing of payments directly affects their Net Present Value:

Immediate Payments (0 days):

  • No discounting applied
  • NPV = Future Value
  • Full face value counts toward Total Present Value

Short-Term Payments (e.g., 10-30 days):

  • Minimal discounting
  • NPV is slightly less than Future Value
  • Small impact on Total Present Value

Long-Term Payments (e.g., 90+ days):

  • Significant discounting
  • NPV is noticeably less than Future Value
  • Larger impact on Total Present Value
  • Can create substantial savings compared to immediate payment

Key Insight: The longer you delay a payment (while maintaining the same total amount), the lower its present value becomes. This is why payment plans that defer larger portions of payment often have lower Total Present Values.

Percentage Validation Logic

The system ensures payment percentages always total exactly 100%:

Validation Rule: ∑i=1nPayment Percentagei=100%\sum_{i=1}^{n} \text{Payment Percentage}_i = 100\%

Automatic Adjustment:

  • When you edit a payment percentage (except the last one), the system calculates: Last Payment Percentage=100%−∑i=1n−1Payment Percentagei\text{Last Payment Percentage} = 100\% - \sum_{i=1}^{n-1} \text{Payment Percentage}_i

  • This ensures the sum always equals 100%

  • If the calculated last payment percentage would be negative, it’s set to 0% (though this would make the plan invalid)

Why 100% is Required:

  • Payment plans must account for the entire purchase order amount
  • If percentages total less than 100%, you’re not paying the full amount
  • If percentages total more than 100%, you’re overpaying
  • Only plans totaling exactly 100% can be compared meaningfully

Troubleshooting & FAQ

Common Issues and Solutions

Problem: “Payment percentages must sum to exactly 100%” Alert Appears

Symptoms:

  • Red alert box appears above the payment schedule table
  • Table footer shows Total Payment % as something other than 100%
  • Comparison table shows red alert icon for this plan

Causes:

  • You’ve entered payment percentages that don’t add up to 100%
  • You may have accidentally deleted or modified a payment option
  • You may have entered percentages incorrectly

Solutions:

  1. Check each Payment % value in your payment schedule
  2. Add up the percentages manually to verify they total 100%
  3. Adjust individual payment percentages until they sum to 100%
  4. Remember: The system automatically adjusts the last payment’s percentage when you edit others, but you can manually edit the last one if needed
  5. If you have only one payment option, set it to 100%

Problem: Future Value and Net Present Value Show ”-” Instead of Dollar Amounts

Symptoms:

  • Payment schedule table shows ”-” in Future Value and Net Present Value columns
  • Total Present Value summary doesn’t appear

Causes:

  • You haven’t entered a Purchase Order Amount, or
  • The Purchase Order Amount field is empty

Solutions:

  1. Locate the “Purchase Order Amount” field in the Payment Terms Suppliers card header
  2. Enter the total dollar amount of your purchase order
  3. You can type numbers with or without commas
  4. Once entered, all calculations will appear automatically

Problem: Day Rate, Period Day Rate, and Discount Factor Show 0% or 0

Symptoms:

  • Calculated fields in the “Additional information” card show zero values
  • Payment calculations don’t seem to account for time value of money

Causes:

  • You haven’t entered a WACC value, or
  • WACC is set to 0%

Solutions:

  1. Locate the “WACC” field in the Additional information card
  2. Enter your company’s annual Weighted Average Cost of Capital as a percentage number
  3. For example, if your WACC is 8.5%, type “8.5” (not “8.5%”)
  4. Once entered, all calculated fields will update automatically

Problem: Payment Terms Suppliers Card Doesn’t Appear

Symptoms:

  • You can see the “Additional information” card but nothing below it
  • You can’t enter a Purchase Order Amount

Causes:

  • You haven’t entered a Period (Days) value, or
  • Period is set to 0

Solutions:

  1. Locate the “Period (Days)” field in the Additional information card
  2. Notice the asterisk (*) indicating it’s required
  3. Enter a positive whole number (e.g., “30” for 30 days)
  4. The Payment Terms Suppliers card will appear immediately after you enter a valid period

Problem: Can’t Delete a Payment Option

Symptoms:

  • Trash icon button is grayed out or disabled
  • Clicking the delete button doesn’t remove the payment option

Causes:

  • You’re trying to delete the last remaining payment option
  • The system requires at least one payment option per plan

Solutions:

  • You must always have at least one payment option in each plan
  • If you want to change a payment, edit its values instead of deleting it
  • To remove a payment option, first add another one, then delete the unwanted option

Problem: Can’t Delete a Payment Plan

Symptoms:

  • “Remove Plan” button doesn’t appear, or
  • Clicking “Remove Plan” doesn’t work

Causes:

  • You only have one payment plan remaining
  • The system requires at least one payment plan

Solutions:

  • You must always have at least one payment plan
  • If you want to start over, edit the existing plan’s values instead
  • To remove a plan, first create a new plan, then remove the unwanted one

Problem: Period Changes Affect Existing Payment Plans

Symptoms:

  • You change the Period value in the top section
  • All payment options (except the first) automatically update to the new period value
  • You lose your custom payment day settings

Explanation:

  • This is intentional system behavior
  • When you have payment plans with multiple options, changing the Period updates all options (except the first) to follow the period pattern
  • This maintains consistency with your period setting

Solutions:

  1. Set your Period value before creating detailed payment schedules
  2. If you need custom payment days that don’t follow the period pattern, manually edit each Payment Days field after changing the Period
  3. Consider whether you really need to change the Period—if your payment schedule is already set up, you might not need to modify it

Problem: Comparison Table Doesn’t Show Best Value Badge

Symptoms:

  • Comparison table appears but no plan is marked as “Best Value”
  • All plans show similar Total Present Values

Causes:

  • Multiple plans have identical or very similar Total Present Values
  • WACC is very low, making timing differences insignificant
  • All plans have similar payment structures

Solutions:

  1. Check if plans truly have different Total Present Values (look at the exact numbers)
  2. If values are identical, both payment arrangements are financially equivalent
  3. Consider other factors beyond financial analysis (supplier relationships, cash flow timing, etc.)
  4. If WACC is very low (near 0%), payment timing has minimal financial impact

Problem: Duplicated Plan Has Same Name as Original

Symptoms:

  • After duplicating a plan, both plans have identical names
  • It’s hard to tell them apart in the tabs

Solutions:

  1. The duplicated plan automatically gets “(copy)” appended to its name
  2. If you don’t see this, click on the duplicated plan’s tab
  3. Use the “Plan Name” input field to rename it to something meaningful
  4. For example, change “Supplier A (copy)” to “Supplier A - Alternative Terms”

Frequently Asked Questions

Q: What is WACC and where do I find my company’s WACC?

A: WACC (Weighted Average Cost of Capital) is your company’s average cost of obtaining money from all sources. It’s typically calculated by your finance department or CFO. If you don’t know your company’s WACC, consult with your finance team. Common WACC values range from 5% to 15%, depending on your company’s industry, financial structure, and risk profile.

Q: Can I use this tool if I don’t know my WACC?

A: While WACC is important for accurate calculations, you can still use the tool with an estimated WACC. Many companies use industry averages or a reasonable estimate (e.g., 8-10%). However, for important financial decisions, it’s best to use your actual company WACC for precise analysis.

Q: What if my payment schedule doesn’t follow a regular period (e.g., payments at 0, 45, and 90 days instead of 0, 30, 60)?

A: The Period field is used as a default, but you can manually set each payment’s “Payment Days” to any value you need. Simply enter the exact number of days for each payment option, regardless of the Period setting. The Period is just a convenience default—you have full control over individual payment timing.

Q: Why does the Total Present Value differ from my Purchase Order Amount?

A: This is expected and reflects the time value of money. When payments are delayed, their present value is less than their face value because of your cost of capital. If Total Present Value is less than Purchase Order Amount, you’re actually saving money compared to immediate full payment. If it’s more (rare), the payment timing costs you extra.

Q: Can I compare more than payment terms? Can I factor in early payment discounts?

A: The tool focuses specifically on payment timing analysis. For early payment discounts, you’ll need to manually adjust the Purchase Order Amount. For example, if you get a 2% discount for early payment, use 98% of the original amount for that payment plan. Then compare it to the standard terms plan using the full amount.

Q: What does “Best Value” mean exactly?

A: “Best Value” identifies the payment plan with the lowest Total Present Value. This means that plan costs your company the least in present-day dollars, accounting for the time value of money. However, “best” is purely financial—you should also consider cash flow needs, supplier relationships, and other business factors.

Q: Can I save my payment plans for later?

A: The current version of the tool doesn’t include a save feature. Payment plans exist only during your current session. If you need to reference plans later, consider taking screenshots or noting the key values (payment days, percentages, Total Present Values).

Q: Why do my payment percentages keep changing when I edit them?

A: The system automatically adjusts the last payment’s percentage to ensure all percentages total 100%. When you edit any payment percentage except the last one, the last payment’s percentage changes to maintain the 100% total. This is intentional to prevent invalid payment plans. If you want to change the last payment’s percentage, edit that field directly.

Q: What happens if I enter a very high WACC (like 50%)?

A: The tool will accept any WACC value, but extremely high values may not be realistic for most companies. Very high WACC values cause heavy discounting of future payments, making delayed payment plans appear much more attractive. Use realistic WACC values for meaningful analysis.

Q: Can I have negative payment percentages or payment days?

A: No. Payment percentages must be between 0 and 100, and payment days must be 0 or positive. Negative values don’t make financial sense in this context.

Q: What’s the maximum number of payment plans I can create?

A: There’s no hard limit set by the system. You can create as many payment plans as you need for your analysis. However, having too many plans may make the comparison table difficult to read. Consider focusing on the most relevant options.

Q: Why does the first payment always start at 0 days?

A: The first payment doesn’t have to be 0 days—you can set it to any number of days. However, 0 days (immediate payment) is common and is set as the default. You can edit the Payment Days field for the first payment option to any value you need.

Q: How accurate are the calculations?

A: The calculations use standard financial formulas for time value of money and Net Present Value. They’re mathematically precise based on your inputs. However, the accuracy of your analysis depends on using correct WACC values and realistic payment terms. Always verify critical calculations independently for important decisions.

Q: Can I use this for international currencies?

A: The tool displays amounts in USD (US Dollars) by default. While the calculations work the same regardless of currency, the display formatting is set to USD. The underlying financial principles apply to any currency.

Q: What if my payment plan has installments that don’t add up to exactly 100% due to rounding?

A: The system requires percentages to sum to exactly 100%. If you’re dealing with rounding issues, adjust the percentages slightly so they total 100%. For example, if you have 33.33%, 33.33%, and 33.33% (which sums to 99.99%), change one to 33.34% to reach 100%.

Conclusion

The Payment Terms Calculator is a powerful tool for making informed financial decisions about payment arrangements. By understanding how to use each feature, interpret the results, and apply the underlying financial principles, you can optimize your company’s payment strategies and negotiate better terms with suppliers.

Remember that while the tool provides objective financial analysis, real-world decisions should also consider factors like supplier relationships, cash flow management, contract terms, and business strategy. Use this tool as one important input in your decision-making process, not the sole determinant.

For best results:

  • Always use your actual company WACC for accurate calculations
  • Double-check that payment percentages total exactly 100%
  • Compare multiple scenarios to understand the full range of options
  • Consider both financial optimization and practical business needs
  • Consult with your finance team for important decisions

With practice, you’ll develop an intuitive understanding of how payment timing affects your company’s finances, making you a more effective negotiator and financial decision-maker.

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