How do you calculate the weighted average for a credit period in days where advanced payments are involved? For Eg The supplier is working on Terms 15:60:25 where 15% is paid as advance, 60% on Invoice and 25% after 30 Days of Invoice ( considering the duration between Date of advance and Date of Invoice to be 60 Days). Here in this case, as you can see I cannot directly say I am getting 30 Days credit since 75% of the amount is transferred even before the goods are received. Hope I am able to convey my problem here
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How do you calculate the weighted average for a credit period in days where advanced payments are involved?
- Thread starter vsquare55
- Start date
There is insufficient information to tell.
How long in advance of what do you pay 15%. Is that one year in advance of contractual delivery date? 10 days? 3 days?
How can you possibly pay before you receive the invoice? Is the invoice delivered electronically?
What is the delay between when you actually pay the invoice and physical delivery?
How long in advance of what do you pay 15%. Is that one year in advance of contractual delivery date? 10 days? 3 days?
How can you possibly pay before you receive the invoice? Is the invoice delivered electronically?
What is the delay between when you actually pay the invoice and physical delivery?
Hi Jeff,
thanks for the reply.
Please consider the below as the case
I am engaging in a contract with the supplier for a product which is going to take 1 month to manufacture
Terms agreed upon are 15% as advance ( to mobilize the production activities), 65% against Tax invoice, and 20% after 30 days of the tax Invoice (30 Days Credit)
In this case how can I calculate the net Credit Days?
Hope I am able to explain properly this time.
thanks for the reply.
Please consider the below as the case
I am engaging in a contract with the supplier for a product which is going to take 1 month to manufacture
Terms agreed upon are 15% as advance ( to mobilize the production activities), 65% against Tax invoice, and 20% after 30 days of the tax Invoice (30 Days Credit)
In this case how can I calculate the net Credit Days?
Hope I am able to explain properly this time.
I am now making assumptions.
I am assuming that:
the manufacturer electronically transmits to you the tax invoice at the start of the first day that shipment can commence;
you pay the invoice with guaranteed funds that same day;
shipment is initiated the day after payment of the tax invoice is received;
delivery occurs two days after shipment is initiated;
you require one day for inspection, installation, and testing after delivery; and
you can use the equipment the day after testing is complete.
Days 1 thru 30: -15%
Days 31 thru 34: - 75% (15% + 60%)
Days 35 thru 60: + 25%
30(-15) + 4(-75) + 24(25) =
- 45 - 300 + 600 = 255
255/60 is about 42%
So I guess you could say that this is equivalent to credit of 42% for 60 days compared to 100% to commence
But I think it is better to think that you are clearly financing them for 30 days at 15% and they are clearly financing you for 24 days at 25%. The whole process of paying an additional 60% before delivery seems one-sided to me.
If they are concerned about getting mostly paid before physical delivery, I’d think about some arrangement (eg documentary letter of credit) whereby the manufacturer bills you for the 60% when shipment is initiated and you pay it with guaranteed good funds to get the shipment released for delivery. As it is, you are paying 75% just on their word that there will be a timely delivery.
I am assuming that:
the manufacturer electronically transmits to you the tax invoice at the start of the first day that shipment can commence;
you pay the invoice with guaranteed funds that same day;
shipment is initiated the day after payment of the tax invoice is received;
delivery occurs two days after shipment is initiated;
you require one day for inspection, installation, and testing after delivery; and
you can use the equipment the day after testing is complete.
Days 1 thru 30: -15%
Days 31 thru 34: - 75% (15% + 60%)
Days 35 thru 60: + 25%
30(-15) + 4(-75) + 24(25) =
- 45 - 300 + 600 = 255
255/60 is about 42%
So I guess you could say that this is equivalent to credit of 42% for 60 days compared to 100% to commence
But I think it is better to think that you are clearly financing them for 30 days at 15% and they are clearly financing you for 24 days at 25%. The whole process of paying an additional 60% before delivery seems one-sided to me.
If they are concerned about getting mostly paid before physical delivery, I’d think about some arrangement (eg documentary letter of credit) whereby the manufacturer bills you for the 60% when shipment is initiated and you pay it with guaranteed good funds to get the shipment released for delivery. As it is, you are paying 75% just on their word that there will be a timely delivery.