Late payment cost calculator

Formulas

The calculator works out two separate costs.

1. Financing cost (simple interest):

Financing cost = Amount × (Annual rate ÷ 100) × (Days ÷ 365)

This is the cost of finding the money elsewhere for the delay, or of not being able to put it to work if you had it.

2. Purchasing power loss:

Purchasing power loss = Amount × (1 - 1 ÷ (1 + Monthly inflation ÷ 100)^(Days ÷ 30))

This shows how much value the late amount loses in today’s money. Inflation compounds monthly, assuming 30-day months.

Total and daily cost:

• Total = Financing cost + Purchasing power loss
• Daily cost = Total ÷ Days

Example: 250,000 TL, 45 days late

A customer’s 250,000 TL invoice is 45 days late. Say your annual financing rate is 45% and you expect monthly inflation of 2.5%. These figures are an example; use your own rates.

Had the same receivable been 90 days late instead of 45, the financing cost would rise to 27,739.73 TL and the purchasing power loss to 17,850.15 TL. Doubling the delay roughly doubles the cost.

How to use the result

• Early payment discount: Once you know the daily cost, you know the ceiling for a discount you can offer a customer who pays early.
• Terms and installments: Price accordingly for a customer asking for long payment terms, or offer an installment plan.
• Collection priority: Rank overdue receivables by amount and days, and start with the most expensive.

Days sales outstanding (DSO)

To move from one invoice to the whole business, look at days sales outstanding (DSO):

DSO = (Trade receivables at period end ÷ Sales for the period) × Days in the period

Every day you take off DSO applies the same calculation to your entire receivables balance. In sales and service tracking, installments are tied to a due-date calendar, reminders go out before each due date and overdue collections are tracked in one list. For receivables ageing at month end, see the month-end close guide.