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Supplier payments funding: how to size it and what to watch.

Suppliers who offer a discount for paying early give you a return that can exceed the cost of the money.

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What this looks like

Suppliers who offer a discount for paying early give you a return that can exceed the cost of the money.

Paying a supplier early or in advance can save two to five percent, and sometimes secures allocation in a tight market. The advance only makes sense if the saving and the extra margin beat its cost.

How to size it

Calculate the discount and any margin it protects, then compare with the advance's cost. If the discount pays for most of the cost, the extra is the price of liquidity.

Illustrative arithmetic

A regional distributor depositing about $210,000 a month asks for $80,000 to prepay a supplier for a volume discount. At a 1.2 factor the payback is $96,000, a cost of $16,000. Over roughly 6 months that is about $762 per business day, or close to 8% of monthly deposits.

  • Total payback: $96,000.
  • Cost: $16,000.
  • Payment: about $762 per business day, close to 8% of monthly deposits.

Every figure on this page is illustrative arithmetic in Canadian dollars. It is not an offer, a quote or a promise of approval.

Which structure tends to fit

A short merchant cash advance matches a short, one-time payment. A line of credit is cheaper if you have one.

Where it goes wrong

Before you apply

Typical starting points

Monthly revenueTypically from around $20,000 a month in deposits for Canadian files. The exact line varies by funder and by file.
Time in businessTypically about 12 months. Newer businesses can be reviewed, but the options narrow.
Account healthLimited low-balance or negative days. Funders read the last few months of bank statements for this.
CreditScores from 500 are considered. A score of 600 or higher opens more options and better offers.
DocumentsA signed application and recent business bank statements, typically the last four months.
Existing advancesFiles with an existing advance can be reviewed, including second position.

Common questions

How much should I ask for?

Ask for the amount you can name in dollars and tie to a quote, invoice or schedule. A smaller, specific request is easier to approve and cheaper to repay.

Which structure is best?

It depends on whether the need is a one-time purchase or a recurring gap. See the comparison pages for the trade-offs.

How fast can I get it?

Decisions are often the same day on a complete file, and funding can follow the next business day.

Keep reading

Funding use casesPayroll, inventory, expansion and moreMerchant cash advance CanadaHow an advance against future card sales worksRevenue-based financing CanadaRepay a fixed multiple as a share of revenueCash-flow affordability calculatorCan the month carry the payment?Underwriting situationsCredit, NSFs, time in business and more

Educational information only. It is not legal, tax or accounting advice.

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