Revolving facility

The largest limit most businesses never applied for.

Supplier terms are a revolving credit line with a limit, a cost and a review cycle. Almost nobody manages them that way, which is why they are simultaneously the cheapest and the most expensive credit a business holds.

Last reviewed 8 September 2026

Indicative interest cost

Weekly

Disclaimer

$159/week

$688 /month $8,250 a year while drawn

Facility limit $120,000

$5,000 $500,000

Average drawn balance $55,000

Nothing drawn Fully drawn

Indicative rate 15.00% p.a.

8% (secured) 30% (unsecured)

Apply directly with Prospa Why Prospa

Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.

The short version

Five lines about credit nobody calls credit.

Used within terms, it is free. Thirty days from a supplier costs nothing and removes thirty days from whatever else has to be funded.
A settlement discount forgone is expensive. Two percent for paying twenty days early is a very high annual rate, and it is paid by doing nothing.
It is a real limit with a real review. Suppliers set credit limits, watch payment behaviour and reduce or withdraw terms, exactly as a lender does.
Stretching terms is the most expensive funding here. The cost arrives as lost discounts, tighter terms, lower priority and a relationship that stops helping.
Indicative only. Every figure here is illustrative and specific terms come from the supplier.

The mechanism

Why this is a credit facility.

A supplier extending thirty-day terms is lending the value of the goods for thirty days. It sets a credit limit, it watches how the account is paid, and it can reduce the limit or move the business to prepayment. Every element of a credit facility is present except the word.

The reason it goes unmanaged is that no application was made and no document was signed with a rate on it. The credit was granted in a sales conversation and reviewed quietly by an accounts receivable team, and the business experiences it as ordinary trading rather than as borrowing.

Treating it as a facility changes what a business does with it. Terms become something to negotiate rather than accept, the limit becomes something to know rather than discover, and payment behaviour becomes a lever that has value rather than an administrative habit.

Drawn by

Taking delivery

Repaid by

Paying the invoice

Limit set by

The supplier

Reviewed

Continuously, by behaviour

The hidden price

What forgoing a settlement discount costs, annualised.

Illustrative annual equivalents on common discount structures. The arithmetic is the discount divided by what remains, spread over the days gained.

Discount offered	Days brought forward	Approximate annual equivalent
1% for 7 days rather than 30	23	Around 16%
2% for 10 days rather than 30	20	Around 37%
2% for 10 days rather than 60	50	Around 15%
2.5% for 7 days rather than 30	23	Around 41%
5% for payment on delivery, terms 30	30	Around 64%

Illustrative annual equivalents on stated assumptions, rounded. Any particular arrangement is a matter for the supplier agreement.

Reading the table

The most expensive money in the business is frequently a discount not taken.

A business declining a 2% discount for paying twenty days early is effectively paying around 37% a year for those twenty days of credit. That is higher than any facility on this site, including a carried credit card balance, and it is incurred by taking no action at all.

The consequence runs the other way too. Where a business has a line of credit at 13% and a supplier offering 2% for twenty days, drawing on the line to take the discount is straightforwardly profitable. It converts very expensive implicit credit into much cheaper explicit credit, and the saving is real money every time the cycle repeats.

Almost nobody does this arithmetic, because the discount reads as a small percentage and the facility reads as a large one. Comparing them properly requires putting both on the same annual basis, which takes a minute and frequently reverses the decision.

The most expensive funding on this site

Stretching a supplier costs more than any lender charges, and the invoice never arrives.

Paying at sixty days on thirty-day terms funds the business at the supplier’s expense, and the cost is paid in ways that do not appear in the accounts. Settlement discounts are lost, terms are tightened at the next review, allocation of scarce stock goes to businesses that pay, and the supplier that would have helped in a genuinely difficult month has stopped being willing to. Every one of those is real and none of them is a line item, which is precisely why stretching terms feels free and is not.

Negotiating it

Four things worth asking a supplier for.

Each of these is an ordinary commercial conversation rather than an admission of difficulty, and each is granted more often than it is requested.

Longer terms on the same price

Moving from twenty to thirty days, or thirty to forty-five, costs the supplier little where the relationship is established and removes real days from the business’s funding requirement.

A higher limit before it is needed

A limit raised in a calm month is a different request from one raised when an order has been held. Suppliers respond to the timing as much as to the number.

A settlement discount, where cash allows

A supplier that would rather be paid early will frequently offer one. Where the business has a cheaper facility to draw on, taking the discount is profitable rather than merely tidy.

Seasonal terms

Extended terms across a pre-season build, returning to normal afterwards. This is standard in several New Zealand sectors and is rarely offered without being asked for.

Against a bank facility

Where trade credit wins and where it does not.

The comparison is worth making explicitly, because the two are usually managed by different people in a business and never set side by side.

Feature	Trade credit	Line of credit
Cost within terms	Nothing	Interest on the balance
Cost of a forgone discount	Very high annualised	Not applicable
Application	None, granted in a sales conversation	A formal process
Limit visibility	Frequently unknown to the business	Stated
Consequence of over-use	Relationship and supply	Fees and review
Flexibility of use	Only with that supplier	Anything

The healthiest position is trade credit used fully within terms, discounts taken where a cheaper facility funds them, and a line of credit covering everything trade credit cannot reach.

The trade

What it gives and what it costs.

What it gives

Free credit within terms, which no bank facility can match
No application, no documentation and no security
A limit that grows with the relationship rather than at a formal review
Terms that can be negotiated by anyone in the business rather than by a finance function
Seasonal flexibility that is standard practice in several sectors

What it costs

A very high implicit rate wherever a settlement discount is forgone
Usable only with that supplier and only for what they sell
A limit the business frequently does not know until it is reached
Consequences for over-use that are commercial rather than financial
Concentration risk, where one supplier funds a large part of the operation

When it goes wrong

Three consequences that never appear as interest.

Terms are tightened

A supplier moves the business from thirty days to fourteen, or to prepayment, after a period of late payment.

What happens:A funding requirement created instantly, for the amount of credit that was withdrawn, at the point the business could least absorb it.

Supply is deprioritised

Where stock is scarce, it goes to the accounts that pay. This is rarely announced and is visible only as slower fulfilment.

What happens:Lost sales attributed to the supplier rather than to the payment behaviour that caused them.

The relationship stops helping

A supplier asked for a favour in a genuinely difficult month declines, because the account has been difficult for a year.

What happens:The loss of the cheapest and most flexible support available to a small business, at the moment it mattered most.

None of these produces an invoice, which is exactly why stretching terms feels like free funding. The cost is real, it is paid in commercial rather than financial currency, and it is generally larger than the interest that would have been avoided.

The honest position

Managed like a facility, it is the strongest one a business has.

Trade credit used fully and within terms ordinarily costs nothing at all, and it is routinely underused by businesses that pay early out of habit. Paying on day fifteen when terms are thirty gives the supplier fifteen days of free money and costs the business exactly what it would cost to borrow the same amount elsewhere.

It is also routinely overused by businesses that pay at sixty, in a way that costs considerably more than they realise and never shows up as a number. Both failures come from the same source, which is that nobody is managing it as a facility.

The change worth making is small. Knowing the limit with each significant supplier, knowing the terms, paying on the last day rather than early, and running the discount arithmetic once for each supplier that offers one. That is an afternoon of work and it is usually worth more than renegotiating a bank facility.

From the other side

A business extending terms is running a credit facility too.

Every business that invoices on terms is a supplier extending credit, and the same analysis applies in reverse. A customer given thirty days is being lent the value of the goods for thirty days, and the business is funding that from its own facility or its own capital.

That symmetry is worth holding onto, because it makes the cost of the business’s own terms visible. Offering sixty days where thirty was possible is a real concession with a number attached, and it is frequently made in a sales conversation by someone who has never seen that number.

It also clarifies what a settlement discount is on the receivable side. A supplier offering two percent for early payment is buying twenty days of funding at a rate that would be alarming if it appeared on a facility, and a business offering the same discount to its own customers is selling it at the same price.

Concentration

When one supplier is also the largest lender.

Where a single supplier provides both a large share of the goods and a large share of the credit, a change in their terms is a funding event the business cannot easily absorb. That is the same concentration risk a receivables funder caps on the customer side, and almost nobody measures it on the supply side.

The measurement is straightforward: the outstanding balance with each supplier, as a share of the total owed. Where one account represents a large proportion, a term change from that supplier is a bigger event than a limit reduction from a bank, and it can arrive with less notice.

The responses are the ordinary ones. A second supplier for critical lines, even at a slightly worse price, and a facility large enough to absorb a terms change from the largest account. Both cost something and both are cheaper than discovering the exposure when the terms actually change.

The comparison

What a line of credit would cost instead.

Where a settlement discount is on offer, comparing its annual equivalent against the cost of drawing on a facility is what decides whether to take it. This is the second half of that comparison. Indicative only, and not a quote or offer of credit.

Indicative interest cost

Weekly

Disclaimer

$159/week

$688 /month $8,250 a year while drawn

Facility limit $120,000

$5,000 $500,000

Average drawn balance $55,000

Nothing drawn Fully drawn

Indicative rate 15.00% p.a.

8% (secured) 30% (unsecured)

Apply directly with Prospa Why Prospa

Indicative only. Not a quote or offer of credit. Actual rates, fees, and repayments depend on the business profile and the lender's decision.

References

Sources

Commerce Commission
The regulator whose guidance covers conduct between businesses and unfair contract terms.
Ministry of Business, Innovation and Employment
Context for New Zealand work on business payment practices and payment times.
Companies Office
The register used when assessing or being assessed as a trade credit counterparty.
Personal Property Securities Register
Relevant because suppliers commonly register a purchase money security interest over goods supplied on credit.
Financial Markets Authority, financial advice
Backs the distinction between general information of this kind and regulated financial advice.

FAQ

Supplier and trade credit lines in New Zealand, questions answered

Is trade credit really a credit facility?

Mechanically, yes. A supplier extending terms is lending the value of the goods, setting a limit, watching payment behaviour and reviewing the arrangement. Every element of a facility is present except an application and a stated rate.

What does a settlement discount actually cost to forgo?

More than most businesses expect. Two percent for paying twenty days early is around 37% on an annual basis, which is higher than any facility on this site, and it is incurred by doing nothing.

Should a line of credit be drawn to take a discount?

Frequently yes. Where the discount’s annual equivalent exceeds the facility rate, drawing to take it converts expensive implicit credit into cheaper explicit credit, and the saving repeats every cycle.

Is paying early ever right?

Only where a discount is offered and the arithmetic supports it, or where a supplier relationship genuinely needs the gesture. Paying early without a discount gives the supplier free money at exactly the cost the business would pay to borrow it.

How is a trade credit limit set?

By the supplier, ordinarily from a credit check, trade references and payment history. It is reviewed continuously by behaviour rather than on a schedule, which is why late payment affects it faster than a bank facility.

What happens if terms are exceeded?

Discounts are lost, terms are tightened at review, supply may be deprioritised where stock is scarce, and the supplier becomes unwilling to help in a genuinely difficult month. None of it appears as an invoice.

Can longer terms be negotiated?

Frequently, and it is asked for less often than it is granted. An established account with a clean payment record moving from twenty days to thirty costs the supplier little and removes real days from the business’s funding requirement.

What are seasonal terms?

Extended terms across a pre-season build that revert afterwards. They are standard practice in several New Zealand sectors and are rarely offered without being requested, which makes them one of the more valuable things to ask for.

Do suppliers take security?

Commonly, in the form of a purchase money security interest registered over the goods supplied. That is ordinary practice rather than a sign of concern, and it is visible on the Personal Property Securities Register.

Is concentration with one supplier a risk?

Yes, in the same way customer concentration is. Where one supplier provides a large share of both goods and credit, a change in their terms is a funding event the business cannot easily absorb.

What is the single most useful thing to do?

Know the limit and the terms with each significant supplier, pay on the last day rather than early, and run the discount arithmetic once for each supplier that offers one. That is an afternoon and it is usually worth more than renegotiating a bank facility.

Is this page financial advice?

No. It describes a commercial arrangement in general terms. This site is not a lender, a broker or a registered financial adviser, and how a particular supplier relationship should be handled depends on facts a website cannot see.