Work out inventory holding cost of terms instantly with clear inputs, formula shown and shareable results.
Payment terms fund part of your inventory for free: only the days on hand beyond the payment terms are self-funded. Extending terms from 45 to 62 days would eliminate the financing cost entirely, which is the real value of a terms negotiation.
Self-funded days
Self-funded = max(0, Inventory days on hand - Payment terms days)
Financing cost
Cost = Average inventory x Self-funded days / Days on hand x Cost of capital %
Matching them means suppliers fund your entire stockholding. Beyond that you generate cash from holding inventory, which is what strong retailers achieve.
No. Reducing days on hand cuts obsolescence and space cost too, which extending terms does not touch.