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Inventory Holding Cost Of Terms Calculator

Work out inventory holding cost of terms instantly with clear inputs, formula shown and shareable results.

About Inventory Holding Cost Of Terms Calculator

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.

Formulas

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 %

Worked example

With the default values below, Inventory Holding Cost Of Terms Calculator returns Inventory you fund yourself of $23,580,645.16. Change any input above and every figure here is recalculated in your browser.

Inputs used

Average inventory value
86,000,000
Supplier payment terms
45
Inventory days on hand
62
Cost of capital
9

Results

Inventory you fund yourself
$23,580,645.16
Days of inventory you fund
17.0
Annual financing cost of that inventory
$2,122,258.06
Days funded by supplier terms
45.0

Step by step

  1. 1Values used
  2. 2Self-funded days
  3. 3Financing cost
  4. 4Inventory you fund yourself= 23,580,645.16
  5. 5Days of inventory you fund= 17.0
  6. 6Annual financing cost of that inventory= 2,122,258.06
  7. 7Days funded by supplier terms= 45.0

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, tax or compounding frequency 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.

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 aim for terms longer than inventory days?

Matching them means suppliers fund your entire stockholding. Beyond that you generate cash from holding inventory, which is what strong retailers achieve.

Does this replace inventory reduction?

No. Reducing days on hand cuts obsolescence and space cost too, which extending terms does not touch.

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