Simple payback loves front-loaded cash
Two projects with the same total cash can have wildly different paybacks if one front-loads inflows. Payback is timing-sensitive, not just size-sensitive.
Timing matters
Payback Time Calculator — Simple & Discounted Payback with Chart
Inputs
Upfront cost (treated as an outflow at period 0).
Example: £2,500 each year (or month if Monthly is selected).
Used for constant mode, or to cap the table/chart with custom flows.
If Period = Monthly, converted via (1+r)1/12−1.
Results
Simple Payback
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Discounted Payback
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Tip: Switch Annual/Monthly to see how the period changes payback and discounting.
Cash Flow Table
| Period | Cash Flow (£) | Discounted Cash Flow (£) | Cumulative (£) | Cumulative Discounted (£) |
|---|
What is Payback Time?
The payback period answers a simple question: how long does it take to recover an initial investment from the cash it generates? This calculator helps you estimate that break-even point using both simple payback and discounted payback. Simple payback ignores the time value of money, while discounted payback applies a discount rate so future cash flows are worth a little less than cash received today. Seeing both side by side is a practical way to compare projects, equipment purchases, marketing campaigns, or any investment with expected cash inflows.
In the simplest case with a constant cash inflow, the formula is straightforward: Payback = I / C,
where I is the initial outlay and C is the cash received each period. Real
projects are rarely that smooth, so this calculator sums cash flows period by period until the cumulative total
reaches the starting investment. If the break-even point happens partway through a period, the tool interpolates
to show a fractional payback time.
Discounted payback uses the same idea but applies a discount rate to each period’s cash inflow:
Σ Ck / (1+r)k. This reflects the time value of money and generally produces
a longer payback time. If the discounted cumulative total never reaches the initial investment within the
chosen horizon, the calculator reports “no payback” for that window.
How to use the payback time calculator
- Enter the initial investment amount.
- Select annual or monthly periods to match your cash flow timing.
- Choose constant inflows or input a custom cash flow schedule.
- Set a discount rate if you want the discounted payback period.
- Review the payback result, cumulative chart, and table; export to CSV if needed.
Common use cases include evaluating a new piece of equipment, comparing marketing campaigns, assessing a rental property upgrade, or testing the payback on a software subscription. A business might prefer projects with a shorter payback to reduce risk, while a household could use payback time to decide whether energy-efficiency upgrades are worth the cost. The chart and table make it easy to see how cash flows build over time and how discounting changes the answer.
Strengths, Limitations & Best Practice
Payback is popular because it is quick, intuitive, and easy to explain. It helps with liquidity planning and gives a fast sense of how long capital is tied up. The discounted version improves the picture by reflecting that money received later is less valuable than money received now.
- Strength: Clear break-even focus for quick screening.
- Discounted view: Adds time value of money to reduce overly optimistic results.
- Limitation: Ignores cash flows after payback, so it should not be your only metric.
- Best practice: Compare payback with NPV or IRR when choosing between projects.
- Rate conversion: For monthly modeling, use
(1+r)1/12−1rather than APR/12.
5 Fun Facts about Payback Time
Discounting can erase “break-even”
Add a realistic discount rate and some projects that “pay back” in 3 years suddenly never do within your horizon—the time value haircut is ruthless.
Time cost
Monthly conversions aren’t APR ÷ 12
Using (1+r)1/12−1 for monthly discounting can move payback by months versus the quick-and-dirty APR/12 approximation.
Rate math
Interpolation hides mini paybacks
When cumulative inflows cross the line mid-period, linear interpolation finds the fractional period. The “exact” break-even might be Day 142.3, not Month 5.
Fractional wins
It ignores the party after break-even
Payback doesn’t care about giant cash flows after recovery. A project that barely pays back in 4 years but gushes cash in year 5 looks identical to one that stops at break-even.
Beyond the line