01
Supplier terms
Every day of supplier credit is a day the facility does not fund. Moving from payment on delivery to thirty days removes a month of interest from every cycle at no cost.
How a limit is used
Draw to buy, repay when it sells.
A stock cycle is the cleanest use a revolving facility has, because the drawing and the repayment are both tied to something specific and both happen on a known rhythm.
Last reviewed 8 September 2026
Indicative interest cost
Weekly
$175/week
$758 /month $9,100 a year while drawn
$160,000
$5,000 $500,000
$70,000
Nothing drawn Fully drawn
13.00% 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 $160,000 scenario
$70,000 drawn at 13.00% . Prospa will ask a few quick questions, then provide a firm quote and funding if eligible.
Redirecting…
The short version
Five lines about the cycle.
- The turn rate sets the cost. The same dollar drawn against stock that turns six times a year costs half what it costs against stock that turns three times.
- Supplier terms come first. Every day of supplier credit is a day the facility does not have to fund, and it costs nothing to use.
- A cycle that empties is working. The facility should return to zero or close to it between cycles, and a balance that persists is funding stock that is not moving.
- Draw per purchase, not to the limit. Drawing what a specific order costs keeps the arithmetic visible and stops the facility becoming a general balance.
- Indicative only. Every figure here is illustrative and no facility is offered here. Terms come from a lender after assessment.
The cycle
What a clean stock cycle looks like on a facility.
Stock is ordered and the supplier gives thirty days. Nothing is drawn during those thirty days, because the supplier is funding the position, which is the cheapest funding available and the reason the first step is always the supplier conversation rather than the lender one.
When the invoice falls due, the facility is drawn to pay it. Interest starts accruing on that amount from that day, and it accrues until the stock has sold and the customer has paid. The length of that period is what the facility actually costs.
As the stock converts, the facility is repaid and the headroom returns for the next order. A business running this pattern well fills and empties the facility several times a year, and the average drawn balance is a fraction of the total value of stock bought.
Order placed
Supplier terms start
Invoice due
Facility drawn
Stock sells
Cash arrives
Facility repaid
Headroom restored
Worked example
The same $160,000 of purchases, at two turn rates.
A retailer buys $160,000 of stock a year. Where the stock turns six times, the average holding is about $27,000 and the facility, drawn after thirty days of supplier terms, carries an average balance of roughly $18,000. At an indicative 13% that is about $2,340 a year.
Where the same $160,000 turns twice, the average holding is around $80,000 and the average drawn balance is roughly $70,000. The same facility at the same rate now costs about $9,100 a year, nearly four times as much for identical purchases.
The difference is entirely in how long the goods sit. That is why the useful response to a rising facility cost is almost never a conversation about the rate, and almost always a conversation about which ranges are slow and whether they should still be bought at the same volume.
Illustrative figures
- Annual purchases
- $160,000
- At six turns, average drawn
- ~$18,000
- Cost a year
- ~$2,340
- At two turns, average drawn
- ~$70,000
- Cost a year
- ~$9,100
Illustrative on stated assumptions and rounded. Not a quote or offer of credit.
Reducing what the facility carries
Four levers, cheapest first.
Each of these reduces the average drawn balance without changing what is bought or sold, and the first two cost nothing.
02
Listing and clearing faster
Goods sitting in a back room waiting to be booked in or listed are funded and unsellable. The days lost there are entirely within the business’s control.
03
Buying more often in smaller quantities
A higher unit cost against a lower average holding is frequently the better trade once funding and holding costs are counted, particularly on slow ranges.
04
Stopping the slow ranges
The ranges consuming most of the facility contribute least of the margin, and they are usually the ones nobody wants to stop buying. Measuring drawn balance by range makes the argument concrete.
The signal to watch
A stock facility that never empties is funding stock that never sold.
The whole point of the pattern is that each cycle clears. Where a residual balance persists cycle after cycle, that residue corresponds to inventory that has not converted, and the facility is quietly financing a growing pile of goods at a revolving rate. The response is not a larger limit. It is an honest look at what is on the shelves, because the facility has already told the business which ranges are the problem by refusing to come back down.
Instrument choice
Where a revolving limit beats the alternatives for stock.
Stock funding is one of the clearest cases for a revolving facility, and the exceptions are worth knowing.
| Feature | Revolving limit | Term loan | Supplier terms |
|---|---|---|---|
| Cost while stock is unsold | Interest on what is drawn | Interest on the whole amount | Nothing, within terms |
| Available for the next order | Yes, once repaid | No | Yes, within the limit |
| Covers goods from any supplier | Yes | Yes | No, only that supplier |
| Requires an application each time | No | Yes | No |
| Suits a one-off large build | Reasonably | Well | Rarely large enough |
A one-off, large, defined build with a long conversion period is the case where a term facility can be better, because the money is genuinely needed for the whole period and a term rate is lower. Everything repeating belongs on a limit.
Running it well
Three habits that keep a stock facility honest.
01
Draw per order, not to the limit
Transferring exactly what an order costs, rather than topping the account up, keeps the connection between the drawing and the goods visible. It also makes it obvious when a drawing has not been repaid by the time that stock should have converted.
02
Repay when the stock converts, not when convenient
Cash from a sale that stays in the account rather than reducing the facility is costing interest for no reason. On a facility charged daily, repaying the week the money lands rather than at month end is a real saving repeated every cycle.
03
Reconcile the balance against the shelves quarterly
The drawn balance should correspond roughly to stock bought and not yet sold. Where the balance is materially higher than the value of unsold goods, the facility has drifted into funding something else, and finding out which quarter that started is considerably easier than finding out two years later.
The pattern
What a revolving limit does well here, and what it does not.
What it does well
- Charges only for the period stock is actually held and unsold
- Restores headroom for the next order without a new application
- Funds purchases from any supplier rather than only one
- Scales across several cycles a year without renegotiation
- Makes the cost of slow-moving stock visible as an interest line
What it does not
- Improve a buying decision, which is where the real risk sits
- Cover holding costs beyond funding, which are frequently larger
- Force repayment when stock stops converting
- Distinguish between stock funding and general drawing once the two are mixed
- Help where the underlying problem is margin rather than timing
The honest limit
A facility funds a purchase and cannot improve it.
Every risk in this pattern reduces to whether the stock sells. Where it does, the facility is doing exactly what it should and the cost is proportional to the wait. Where it does not, the business is holding goods it has to discount and a balance it still has to repay, and no funding structure changes that.
That makes the buying decision more important than the funding one, and it is worth more scrutiny than it usually gets. An unproven range bought in volume because the facility had headroom is a bet placed with borrowed money, and the facility made it easier rather than wiser.
The discipline that keeps this honest is small. Draw against specific orders, repay as they convert, and check quarterly that the balance still corresponds to goods on the shelves. A facility that survives that test is funding a cycle; one that does not has become something else.
Setting it up
What a lender wants to see behind a stock limit.
A limit funding inventory is sized against the buying pattern, so the buying pattern is what the application should describe.
01
The purchase and sales rhythm
How often stock is bought, in what quantities, and how long it takes to sell. A lender that can see the cycle can size the limit to it, and a request without that is asking the lender to guess.
Documents commonly required
- Purchase history
- Sales by period
- Stock on hand
02
Supplier terms
What credit suppliers already extend, because that is funding the lender does not have to provide. A business with thirty days from its suppliers needs a materially smaller limit than one paying on delivery.
Documents commonly required
- Supplier terms schedule
03
The trading picture
Bank statements, financial statements and existing commitments, as with any facility. Stock as security is ordinarily treated cautiously, so the trading position carries more of the file than the inventory does.
Documents commonly required
- Bank statements
- Financial statements where held
Lenders are ordinarily more conservative about inventory than about receivables, because its value on a forced sale is uncertain and depends on the goods. Stock frequently forms part of a security package rather than the whole of one.
A note on measurement
Days inventory outstanding, by range.
The average holding period across the whole business hides the thing worth knowing. Nearly every business has ranges that turn quickly and ranges that do not, and the slow ones are consuming most of the facility while contributing least of the margin.
Calculated per range, from inventory value against cost of goods sold for that range, the picture changes what gets bought. A range holding ninety days of stock at a thin margin is being funded for three months to produce very little, and seeing that as a number is more persuasive than any general sense that some things move slowly.
It is also the argument that makes a supplier conversation concrete. Asking for longer terms on the slow ranges specifically, rather than across the board, is a smaller request with a clearer rationale and is granted more often.
The cost of the cycle
What carrying stock on a limit costs.
A revolving facility charges on what is drawn, so this shows the interest cost of an average drawn balance across the year. Holding costs beyond funding sit on top of it. Indicative only, and not a quote or offer of credit.
Indicative interest cost
Weekly
$175/week
$758 /month $9,100 a year while drawn
$160,000
$5,000 $500,000
$70,000
Nothing drawn Fully drawn
13.00% 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 $160,000 scenario
$70,000 drawn at 13.00% . Prospa will ask a few quick questions, then provide a firm quote and funding if eligible.
Redirecting…
References
Sources
- Inland Revenue, trading stock
Context for how trading stock is treated, which is a matter for the business’s accountant.
- New Zealand Customs Service
Relevant where stock is imported and duty and clearance form part of what the facility funds.
- 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
Funding a stock cycle, questions answered
What does a stock cycle cost on a revolving limit?
Interest on the drawn balance for as long as the goods are held and unsold. The turn rate therefore sets the cost, and the same annual purchases can cost several times as much on slow ranges as on fast ones.
Should supplier terms be used first?
Always. Every day of supplier credit is a day the facility does not fund, and it costs nothing. Drawing on a limit while a supplier invoice is not yet due is paying interest to hold money that was already free.
How much of the limit should a stock cycle use?
What the orders actually cost, drawn per order rather than as a general top-up. Keeping the drawing tied to specific goods is what makes it obvious when a cycle has not cleared.
What does a facility that never empties mean?
That stock has not converted. The residual balance corresponds to goods still on the shelves, and the response is a look at which ranges are not moving rather than a larger limit.
Is a term loan ever better for stock?
For a one-off, large, defined build with a long conversion period, sometimes, because a term rate is lower and the money is genuinely needed throughout. Anything repeating belongs on a limit.
How does turn rate affect the facility?
Directly and proportionally. Stock turning six times a year carries roughly half the average balance of stock turning three times, for identical purchases, and the interest follows.
Should sale proceeds go straight onto the facility?
Ordinarily yes. Interest accrues daily on the balance, so cash sitting in the account rather than reducing the drawing costs money for no benefit. Repaying as receipts land is a real saving repeated every cycle.
How can slow stock be identified?
By tracking days inventory outstanding by range rather than in total. The average hides the problem, and the slow ranges are consuming most of the facility while contributing least of the margin.
Does the facility cover holding costs?
It funds the purchase. Storage, insurance, handling and obsolescence are separate and frequently larger than the interest, particularly on slow-moving inventory, and they belong in any comparison of a bulk discount against holding cost.
What if a range has to be cleared at a loss?
The facility still has to be repaid, and the shortfall comes from elsewhere. That is the risk funding cannot manage, which is why the buying decision deserves more scrutiny than the funding decision.
How often should the balance be reconciled to stock?
Quarterly is enough for most businesses. The drawn balance should correspond roughly to goods bought and not yet sold, and a growing gap between the two shows the facility has drifted into funding something else.
Is this page financial advice?
No. It describes a usage pattern 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
Supplier and trade credit
The funding to use before the facility.
Read onInvoice-backed line
Where the limit grows as the ledger does.
Read onSmoothing seasonal cash flow
The longer version of the same curve.
Read onInterest and fees
Why repaying promptly matters on a daily-charged balance.
Read onAll eight facilities
Every revolving arrangement compared in the same shape.
Read on