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 (£) |
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What is Payback Time?
Payback time (or payback period) is the time it takes for the cumulative cash inflows from a project to equal the initial investment. This calculator shows both Simple Payback (no discounting) and Discounted Payback (accounts for the time value of money using a discount rate).
Simple Payback (constant inflow C): Payback = I / C. With varying cash flows, we sum period by period until cumulative ≥ I; if the crossover occurs within a period, we interpolate: t = t- + (remaining / flow).
Discounted Payback: find the smallest t such that Σ Ck / (1+r)k ≥ I, where r is the per-period discount rate (annual rate converted to monthly if the period is monthly). Fractional periods are interpolated the same way using discounted amounts.
Notes: If cumulative discounted inflows never reach the initial outlay within the chosen horizon, the discounted payback is “no payback” in that window. This can happen when the discount rate is high or cash flows are small/late.
Strengths, Limitations & Best Practice
- Fast and intuitive: Helpful as a screening tool and for liquidity planning.
- Discounted version: Penalises later cash flows via the time value of money.
- Limitations: Ignores benefits after break-even; pair with NPV/IRR for value.
- Monthly vs Annual: Use consistent rate conversion
(1+r)1/12−1when modelling monthly.
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