NamCalcs - Settlement Discounts


Annual Invoiced sales to the Customer (Ex. VAT)
Customer now pays in		days
We want them to pay in		days
i.e.		day reduction in payment period

Customer now pays		times per year (i.e. 365 divided by number of days to pay)
We want them to pay		times per year (i.e. 365 divided by number of days to pay)

Amount they owe us when paying in		days
=

Amount they owe us when paying in		days
=

Therefore, cashflow saving =

Say the customer's interest on deposits (or IRR*) is		% per year i.e (*IRR = Internal Rate of Return)

Therefore, the interest on		for a year
=

Which is equivalent to		% of our sales to the customer per year

Therefore, any extra discount above		% is more valuable than putting the money on deposit,
		earning	% per year
Cost & Value Calculations:
Supplier's net margin =	%
Cost: Incremental sales required by supplier to recover settlement discount =

Customers net margin =	%
Value: Therefore, incremental sales required by customer to recover settlement discount =

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