Supplier Financing
Short definition
Supplier financing is trade credit from buying on terms. Interest does not appear as a line; it is paid as lost discounts, list price and supply risk.
Detailed explanation
Plain terms (30/60/90), volume rebates and reverse factoring are different contracts in the same family. Headline interest is zero, but the effective cost of missing 2/10 net 30 often exceeds a short loan.
Supplier credit may sit outside covenant “debt”; leverage then looks low while operating dependence is high.
Why it matters for the CFO
For most firms this is the largest working-capital funder. A sudden withdrawal is a cash crisis; a bank line that cannot replace it stops production.
How to read it
DPO and the payable stock measure this credit. Stretching it creates cash; shortening it consumes cash. The limit is bargaining power.
Numerical example
2/10 net 30: 2% for paying 20 days early → simple annualised cost = 0.02 / (20/365) = 36.5% (not compounded).
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Definitions are educational. They are not investment, credit or tax advice.