Loading...
Working Capital Facilities · Question
Short answer
Neither is automatically better. Supplier credit looks free but usually carries a cost in lost discounts or higher prices, and it depends on goodwill. A bank facility shows its cost openly and gives dependable funds, but adds covenants and monitoring. Many businesses sensibly use both, relying on the bank limit for the core and supplier credit for the margin.
Compare the real cost, not the labelled cost. A supplier may quote a cash discount for quick payment. Giving that up to pay later is, in effect, borrowing from the supplier at a rate that can exceed bank interest. Work it out per period of delay before deciding that extended terms are cheap.
Supplier credit works well when you buy regularly from a few suppliers who know your payment record, when the extension is agreed openly in writing without price changes, and when the goods are not critical, so a dispute would not stop production.
A bank limit works better when supplier terms are short or price rises offset the benefit, when you need certainty of funds on specific dates such as payroll and statutory dues, or when you want a repayment record that improves future credit access.
| Feature | Bank working capital versus supplier credit |
|---|---|
| Visible cost | Interest and fees are stated; supplier cost is often hidden in price or a lost discount |
| Reliability | Fixed by sanction and reviewed periodically; supplier terms depend on the relationship |
| Strings attached | Covenants, reports and security; supplier terms are informal but late payment damages supply |
| Effect on credit profile | Builds a formal record; supplier credit usually does not |
Do not stretch suppliers silently
Paying late without agreement is the quickest way to lose preferred pricing or supply. Lenders also treat a sharp rise in creditors as a sign of stress when reviewing statements.
A reasonable path is to ask for a modest, agreed extension first and size the bank limit to what remains.
Last reviewed
This answer is general information, not advice on your particular case. Terms, eligibility, and requirements change, so check the current position with the relevant institution or authority. Lalsar Holdings' financial advisory and financing work is advisory and facilitation only. Lalsar Holdings is not a lender. Sanction and disbursement of any credit facility is at the sole discretion of the partner bank, NBFC, or financial institution involved, subject to their own eligibility criteria and credit policy.