Free tool
Cost of credit calculator
Every day a customer takes to pay is a day you fund their business. Put a rupee figure on it before the next conversation about credit days.
The cash credit or overdraft rate on your bank's sanction letter. 11% is only an example.
Result
- Money held by customers on an average day
- ₹15,78,082
- Cost of this credit, a month
- ₹14,466
- Cost of this credit, a year
- ₹1,73,589
- Cash freed if paid 15 days sooner
- ₹3,94,521
- Interest saved a year at 15 days sooner
- ₹43,397
Simple interest on the average amount customers owe you. It leaves out bad debts and the time spent chasing, so the real cost is higher.
Next step in MatruOS
Bring in your sales ledger and MatruOS shows what each customer's late payment costs you. The Collections officer drafts reminders for dues past 60 days, for you to approve.
See this for each customer in MatruOSKeep this result
Method
How this is worked out
Every figure the tool uses is listed here. Assumptions are fields in the tool, so you can change them to match your business.
- Money held by customers = monthly credit sales × 12 × average days to pay ÷ 365.
- Cost of credit = money held × your borrowing rate, as simple interest. Bad debts and the time spent chasing are left out, so the real cost is higher.
- Saving = credit sales × 12 × days sooner ÷ 365 × your rate. You choose the days, and they cannot exceed the days customers take now.
- The 11% borrowing rate is only an example. Use the rate on your bank's sanction letter; bank lending rates to small businesses are linked to an external benchmark such as the RBI repo rate.
- A buyer must pay a micro or small enterprise within the agreed days, and never later than 45 days. Late payment carries compound interest at three times the bank rate notified by the RBI.
Questions
Questions people ask
Which interest rate should I use?
Use the rate on your cash credit or overdraft. If you have no borrowing, use what the money could earn in a deposit.
What can I do about buyers who take more than 45 days?
If you are a micro or small enterprise registered on Udyam, the MSMED Act gives you interest at three times the RBI bank rate, compounded monthly, and you can file a case on the MSME Samadhaan portal. Many buyers now pay within 45 days because of the income-tax rule on late payments to small suppliers.
Read next
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