Here is the simple online Credit Cost calculator to calculate the trade credit costs of an organization or company based on the payment days, discount days and the discount percentage (%). Trade credit is the credit extended by one trader to another trader or customers for the purchase of goods and services. You can calculate the Credit Cost using the payment days, trade credit discount and the discount days using this cost of trade credit calculator.
A customer gets a trade credit discount of 5 % for 30 days and payment is made due for 80 days.
Cost of Trade Credit = [1+ (Discount % / (1 - Discount %))] [365 / (Payment Days - Discount Days)] - 1
= [1+ (0.05/(1-0.05))][365/(80-30)] -1
= 0.4542 x 100 [Percentage %]
= 45.42 %
The cost of trade credit is the amount of money spent on providing trade credit to customers. Trade credit is essential for the growth of the company as well as obtaining satisfaction of the customers. But any organization should monitor that its trade credit does not go beyond limits.