Supplier terms
The cheapest funding available. Thirty or sixty days from a supplier costs nothing and is frequently granted to a customer with a record of paying on time.
Why businesses fund a gap
Stock is cash sitting still until somebody buys it.
Every dollar of inventory is a dollar the business cannot spend, and the cost of holding it is considerably more than the interest on funding it.
Last reviewed 8 September 2026
Indicative repayment
Weekly
$2,173/week
$9,415 /month $4,739 total interest
$80,000
$5,000 $500,000
9 months
6 months 5 years
14.00% p.a.
8% (secured) 30% (unsecured)
Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.
Sending to Prospa
Your $80,000 scenario
9 months at 14.00% . Prospa will ask a few quick questions, then provide a firm quote and funding if eligible.
Redirecting…
The short version
Five lines before any buying decision.
- Holding cost is not just interest. Storage, insurance, handling, shrinkage, obsolescence and the opportunity cost of the cash all sit on top of the funding rate.
- Turn rate decides everything. The same dollar of stock is either working four times a year or once, and the funding cost per sale differs by the same multiple.
- A bulk discount is a loan you cannot repay early. Buying six months of stock to save 8% ties up cash for six months whether or not the saving was worth it.
- Unsold stock is the real risk. A facility can be repaid from trading. Stock that does not sell has to be discounted or written off, and the funding remains.
- Indicative only. Every figure here is illustrative and no facility is offered here. Terms come from a lender after assessment.
The real cost
What holding stock costs beyond the invoice.
The funding rate on a stock facility is the cost people compare, and on slow-moving inventory it is commonly the smallest of the costs involved. Warehousing, handling, stock counts, insurance and the losses that come with moving goods around all accumulate against inventory that is not selling.
Obsolescence is the largest and the least visible. Seasonal ranges, anything with a fashion element, anything superseded by a new model and anything with a shelf life all lose value while they sit, and the loss is realised at the point the business finally discounts to clear.
Adding those together produces a holding cost per month that is frequently several times the interest rate. That figure is what a bulk discount has to beat, and it is almost never the number the discount is compared against.
Funding
The visible cost
Storage and handling
Frequently larger
Shrinkage and damage
Rarely measured
Obsolescence
The expensive one
Worked example
An 8% bulk discount that costs money.
A supplier offers 8% off for taking six months of stock in one order rather than monthly. On a $80,000 annual purchase that is a saving of about $6,400 across the year, and it looks straightforward.
Buying six months at once means carrying an average of roughly $40,000 more stock than the monthly pattern would. Funded at an indicative 14%, that is around $5,600 of interest. Storage, insurance, handling and an allowance for shrinkage on the additional volume add roughly $3,600 more on conservative assumptions.
The discount saved $6,400 and the holding cost was around $9,200, so the deal cost about $2,800. It also converted flexible monthly buying into a fixed six-month commitment, which is a real loss of optionality if the range stops selling. The arithmetic takes ten minutes and it is rarely done, because the discount is a number on a quote and the holding cost is not.
Illustrative figures
- Annual purchase
- $80,000
- Discount at 8%
- $6,400
- Additional average stock held
- ~$40,000
- Indicative funding cost
- ~$5,600
- Other holding costs
- ~$3,600
- Net position
- ~$2,800 worse
Illustrative on stated assumptions and rounded. Actual holding costs vary widely by sector and by product.
Turn rate
What the same dollar of stock does at different speeds.
Illustrative on a 14% funding rate. The point is how sharply the funding cost per sale changes with turn rate.
| Turns per year | Days held | Funding cost per dollar of stock | Effect |
|---|---|---|---|
| 12 | 30 | ~1.2% | Barely material |
| 6 | 61 | ~2.3% | Manageable |
| 4 | 91 | ~3.5% | Visible in the margin |
| 2 | 183 | ~7.0% | A real drag |
| 1 | 365 | ~14.0% | Ordinarily unviable on thin margins |
Illustrative funding cost only, on stated assumptions. Storage, insurance and obsolescence sit on top of these figures.
Which facility
Four ways a stock purchase is funded.
The right one depends on where the stock comes from and how quickly it turns.
Trade finance
Where the stock is imported. It funds the supplier payment through to sale, which is the part no domestic facility reaches.
Read onA term facility
Where the purchase is a one-off build with a defined end. Fixed amount, fixed schedule, and a cost that is easy to test against the margin.
Read onA receivables facility
Not for the purchase itself, but for the period after the stock is sold on credit terms. The two halves of the cycle need different instruments.
Read onThe question behind the funding question
A facility funds a buying decision, and cannot improve one.
The risk in stock funding is not the rate. It is that the stock does not sell, in which case the business holds goods it has to discount and a facility it still has to repay. Every other risk on this page is manageable and that one is not, which is why the buying decision deserves more scrutiny than the funding decision. Where a range is unproven, funding a smaller first order and repeating it is worth considerably more than the bulk discount on a large one.
Funding stock
What it does and does not do.
What it does
- Allows buying at volumes the business could not fund from reserves
- Covers the pre-season build, when the outlay is largest and the cash is smallest
- Keeps shelves full through the period between order and sale
- Makes supplier discounts reachable where the arithmetic genuinely supports them
- Separates the buying decision from the current bank balance, which is frequently the wrong constraint
What it does not
- Improve the quality of the buying decision, which is where the real risk sits
- Cover the holding costs beyond funding, which are frequently larger
- Help with stock that does not sell, where the facility outlives the goods
- Reduce the commitment created by a bulk order, which cannot be unwound
- Substitute for measuring turn rate, which is what tells the business what it is funding
The measurement
Days inventory outstanding, and why it is worth tracking.
Days inventory outstanding is the average number of days stock sits before it sells. It is calculated from the value of inventory held against the cost of goods sold, and it is the number that turns a vague sense that stock is moving slowly into something that can be managed.
Tracked by range rather than in total, it is more useful again. Nearly every business has ranges that turn quickly and ranges that do not, and the average hides both. The slow ranges are consuming most of the funding and contributing least of the margin, and they are frequently the ones nobody wants to stop buying.
It also feeds directly into the cash conversion cycle, which combines it with how long customers take to pay and how long suppliers allow. That combined figure is the length of the gap the business is funding, and there is a calculator for it on this site.
Before the order
Three checks that cost ten minutes each.
01
The turn rate on the range being bought
Not the average across the business. A range that turns twice a year carries roughly seven times the funding cost per dollar of one that turns twelve times, and the two are frequently ordered on the same terms because nobody separated them.
02
The full holding cost, not just the rate
Storage, insurance, handling and an honest allowance for obsolescence, expressed per month. On slow-moving inventory this figure is commonly several times the interest, and it is the number a bulk discount actually has to beat.
03
What happens if it does not sell
The discount to clear, and how long that takes. Where the answer is a heavy markdown eighteen months out, the order is a bet rather than a purchase, and sizing it accordingly is the sensible response rather than declining it.
The supplier conversation
Terms are worth more than a discount on slow stock.
Where a supplier offers a choice between a discount for paying early and extended terms for paying later, the arithmetic on slow-moving ranges frequently favours the terms. Thirty extra days on a range that turns twice a year removes a real slice of the funded period, and the discount saves a percentage once.
On fast-moving ranges the balance tips the other way, because the stock has converted before the extended terms would have mattered. That is the useful way to think about supplier negotiation: match the concession asked for to how quickly the goods turn rather than taking whichever is offered.
Both are worth asking for. A supplier that wants repeat orders has reasons to help, and the request is ordinary commercial conversation rather than a signal about the buyer’s position.
Counting it properly
Stock is the hardest asset to value honestly.
Receivables have a face value and a customer attached to each line. Stock has a cost, a hoped-for selling price and a real market value, and those three diverge quietly. A business carrying inventory at cost is carrying some of it above what it will ever realise, and the gap only becomes visible when the range is finally cleared.
Reviewing the slowest-moving lines every quarter, and writing them down or clearing them while there is still a market, is unglamorous work that keeps the position honest. It also improves every decision that follows, because a stock figure nobody trusts makes the working capital calculation, the cycle measurement and any funding conversation less useful than they should be.
Lenders discount stock heavily for exactly this reason. A funder assessing a security package treats receivables and inventory very differently, and the difference reflects how confident it is about realising each on a forced sale rather than any judgement about the business.
The cost of a build
What funding a stock purchase costs.
A defined stock build funded on a term facility is the shape here. Set the cost against the margin on the stock rather than against another lender. Indicative only, and not a quote or offer of credit.
Indicative repayment
Weekly
$2,173/week
$9,415 /month $4,739 total interest
$80,000
$5,000 $500,000
9 months
6 months 5 years
14.00% p.a.
8% (secured) 30% (unsecured)
Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.
Sending to Prospa
Your $80,000 scenario
9 months at 14.00% . Prospa will ask a few quick questions, then provide a firm quote and funding if eligible.
Redirecting…
References
Sources
- New Zealand Customs Service
Relevant where stock is imported and duty and clearance form part of the landed cost.
- Inland Revenue, trading stock
Context for how trading stock is treated, which is a matter for the business’s accountant.
- Stats NZ
Context for New Zealand retail and wholesale inventory patterns.
- Commerce Commission
The regulator whose guidance covers conduct in supply arrangements between businesses.
- Financial Markets Authority, financial advice
Backs the distinction between general information of this kind and regulated financial advice.
FAQ
Buying stock, questions answered
What does holding stock actually cost?
Funding, storage, insurance, handling, shrinkage and obsolescence. On slow-moving inventory the funding rate is commonly the smallest of those, and obsolescence is the largest and least measured.
How do I know if a bulk discount is worth it?
By comparing the discount against the cost of holding the additional stock for the additional time, including storage and an allowance for obsolescence. On slow-turning ranges a discount of several percent is frequently outweighed.
What is a good stock turn rate?
It varies enormously by sector, so the useful comparison is against the business’s own history and against the funding cost. What matters is the direction and whether the margin on a range covers what it costs to hold it.
Which facility suits a stock purchase?
Trade finance where the stock is imported, a term facility where the purchase is a defined one-off build, and supplier terms wherever they can be negotiated. A receivables facility funds the period after the stock is sold rather than the purchase.
Is supplier credit really cheaper?
Yes, where it is available without a price premium. Thirty or sixty days from a supplier removes that period from the funded cycle at no cost, and it is granted more often than it is asked for.
What happens if the stock does not sell?
The business holds goods that have to be discounted or written off and a facility that still has to be repaid. That is the one risk on this page that funding cannot manage, and it is why the buying decision matters more than the funding one.
Should an unproven range be bought in bulk?
Ordinarily not. Funding a smaller first order and repeating it costs a little more per unit and preserves the ability to stop, which is worth considerably more than the discount on an untested range.
What is days inventory outstanding?
The average number of days stock sits before it sells, calculated from inventory held against cost of goods sold. Tracked by range rather than in total it shows which parts of the business are consuming the funding.
How does it relate to the cash conversion cycle?
It is one of the three components, alongside how long customers take to pay and how long suppliers allow. Together they give the length of the gap the business is funding, which is the number a facility should be sized against.
Does stock work as security for a facility?
Lenders are ordinarily more cautious about stock than about receivables, because its value on a forced sale is uncertain and depends on the goods. It can form part of a security package rather than being the whole of one.
Is there a tax angle to holding stock?
Trading stock has its own treatment and the position depends on the business’s circumstances, so it is a question for the accountant rather than for a website. Inland Revenue is the primary source.
Is this page financial advice?
No. It describes a situation and the instruments that address it in general terms. This site is not a lender, a broker or a registered financial adviser, and what suits a particular business depends on facts a website cannot see.
Related
Related reading
Trade finance
Where the stock is imported and the cycle is longest.
Read onWorking capital loan
The term option for a defined build.
Read onThe working capital cycle
Where stock sits in the wider measurement.
Read onA seasonal cash-flow gap
The pre-season build, in the context of the year.
Read onAll eight products
Every facility compared in the same shape.
Read on