TT · LC · OA

Payment term cost calculator

Price the payment term in working-capital dollars, not days.

"TT 30% deposit, 70% against BL copy" and "100% LC at sight" are not the same deal once the working-capital cost is priced in. Accept a term that ties your cash up longer than the margin can carry and the deal funds the buyer's float out of your pocket. Days are abstract; the dollar cost of the days is what decides whether the term is affordable.

Pick your cost-of-capital rate and the tool returns the working-capital days from shipment and the dollar implication for each of 11 standard terms (TT, LC, OA variants).

Last updated 2026-05-09. Math runs in your browser, no data leaves your computer.

The full invoice value of the shipment. The working-capital cost scales with it, so use the real order size, not a per-unit figure.

What your cash actually costs. Use your treasury or borrowing rate, around 5 to 7% for a healthy company, or your factor-financing rate of 10 to 15% if you fund receivables on a factor line.

General guidance only. Verify against the cited primary sources before you commit to a shipment, declaration, or contract.

Payment terms as working capital lever

Every payment term encodes a number of days the seller waits for payment after shipment. The seller funds those days at its cost of capital; the buyer benefits from the credit at zero interest. The math is symmetric and meaningful: at 6% annual cost-of-capital, OA 60 costs the seller about 1% of order value; at 12% factor-financing rate, the same OA 60 costs nearly 2%. For routine 35,000 USD chemical containers, that is 350 to 700 USD of seller-side cost per shipment.

The negotiation usually moves on price. Seller offers OA 60 at a 1.5% price premium versus T/T upfront; buyer accepts because their working capital cost is higher than the 1.5% premium. Or seller offers a 2% discount for 100% T/T upfront; buyer takes it because cash flow is fine and a 2% saving on a recurring spend is real money.

For new buyer relationships, payment terms also encode credit risk. T/T upfront is zero risk on the seller side and high risk on the buyer side (cargo not yet shipped). LC at sight balances both. OA terms put credit risk fully on the seller; offered only to buyers with proven payment history.

A worked example

The booking. A repeat buyer asks to move from LC at sight to OA 60 on a 35,500 USD container, same price, and it feels like a small courtesy to a good customer.

The failure. It isn't free. At your 6% cost of capital, OA 60 ties up the cargo value for 60 days past shipment, about 350 USD per container, and across 40 containers a year that is 14,000 USD funding the buyer's float out of your margin. The term looked like a goodwill gesture; priced in dollars it is an unbudgeted discount.

The fix. Price the term before you grant it. Offer OA 60 at a 1.5% price uplift that more than covers the 1% working-capital cost, or hold the price and keep LC at sight. Either way the term is a deliberate commercial choice, not a quiet leak.

Working out which LC clauses you are actually agreeing to? The LC terms decoder breaks them down at /tools/finance-and-payment/lc-terms-decoder-rule-based.

Want to sell the receivable instead of funding it? The forfaiting and factoring cost calculator prices that at /tools/finance-and-payment/forfaiting-factoring-cost-calculator.

Frequently asked

What does "working capital cost of payment terms" mean?

When the seller waits for payment, the seller is effectively lending the buyer the cargo value at zero interest. The seller cost of capital (treasury rate, factor financing rate, or marginal-cost-of-funds) times the days of credit times the order value gives the implicit financing cost. A 6% cost-of-capital seller offering OA 60 is paying roughly 1% of order value to fund the buyer.

Why does the buyer prefer longer terms?

Same math reversed. The buyer is borrowing the cargo value from the seller for the term length. For the buyer this is free capital; for the seller it is committed working capital. The price negotiation usually moves: seller offers a lower price for shorter terms or a higher price for longer terms, monetising the working-capital trade.

What is the LC bank-check delay?

When an LC presents, the issuing bank examines documents against the LC text. Examination takes 5 banking days for a sight LC, 5 banking days plus the bill maturity for a usance LC. The 5-day window appears on the days-from-shipment calculation as standard.

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