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Credit Period Cost Calculator

Work out credit period cost instantly with clear inputs, formula shown and shareable results.

About Credit Period Cost Calculator

Offering credit has two costs: financing the receivables balance at your cost of capital, and the bad debts that credit inevitably produces. Together they set the minimum margin uplift that longer terms must generate before they are worth offering.

Formulas

Receivables investment

Average receivables = Annual credit sales x Credit period / 365

Total credit cost

Cost = (Receivables x Cost of capital) + (Sales x Bad debt rate)

Worked example

With the default values below, Credit Period Cost Calculator returns Annual cost of granting credit of $129,369.86. Change any input above and every figure here is recalculated in your browser.

Inputs used

Annual credit sales
6,000,000
Average credit period granted
45
Cost of capital
11
Bad debt rate on credit sales
0.8

Results

Annual cost of granting credit
$129,369.86
Average receivables investment
$739,726.03
Financing cost of receivables
$81,369.86
Expected bad debt cost
$48,000.00

Step by step

  1. 1Values used
  2. 2Receivables investment
  3. 3Total credit cost
  4. 4Annual cost of granting credit= 129,369.86
  5. 5Average receivables investment= 739,726.03
  6. 6Financing cost of receivables= 81,369.86
  7. 7Expected bad debt cost= 48,000.00

Assumptions and limits

  • The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
  • In particular, this calculator does not take inflation or tax into account.
  • Figures are rounded for display to 2 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
  • This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

Should I use cost or sales value for receivables?

Strictly the variable cost tied up is what you finance, so using sales value is conservative. Many treasurers keep it that way as a risk buffer.

How do I justify longer terms?

Show that the incremental contribution from the extra sales exceeds this cost. Otherwise the terms are a silent discount.

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