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Is a bigger parts account cheaper than a working capital advance?
Supplier credit is the largest and least examined financing line in most repair shops. Whether it is cheap depends entirely on whether you are taking the early-payment discount.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
Is a bigger parts account cheaper than a working capital advance for a repair shop?
Usually yes, but only if you are paying inside the discount window. Trade terms like 2 per cent in 10 days, net 30 carry an implied cost of roughly 37 per cent a year when you skip the discount, which is expensive money you are already borrowing without noticing. Extending the account or raising the credit limit is cheaper than an advance when it lets you take discounts and turn parts faster; it is not cheaper when the extra limit simply funds slower-moving inventory. The decision turns on one comparison: the monthly discount you forgo against the monthly cost of funding the twenty days of float that taking it requires.
Most shop owners think of the parts account as a convenience and the advance as financing. Both are financing, and the parts account is usually the larger of the two. A shop buying 38,000 a month in parts on 30-day terms is carrying roughly a month of purchases on somebody else's balance sheet permanently. That is a working capital facility whether or not anyone calls it one.
The question is what it costs, and the answer is hiding in the discount terms.
The implied annual cost of skipping that discount is the discount divided by the amount you keep, annualised over the days you keep it: 2 divided by 98, multiplied by 365 over 20, is 37.2 per cent. That is what the "free" 20 days of supplier credit actually costs.
Now compare. Borrow 25,333 on a facility priced at an illustrative 1.5 per cent a month and the carry is 380 a month. You save 760 and pay 380. You are 380 a month ahead, 4,560 a year, and your parts cost per repair order drops by 2 per cent permanently. The breakeven is 3 per cent a month — at any borrowing cost below that, taking the discount wins.
Where this argument stops working
The arithmetic above assumes the extra 25,333 buys nothing but timing. It often does not.
Why funders keep offering the advance anyway
A repair shop's deposits look excellent to revenue-based underwriting: high card volume, daily receipts, a low seasonal swing compared with construction or landscaping. That makes shops a heavily solicited category, which is a separate problem covered in why repair shops get constant funding calls. The offers are sized off deposits, not off the gap you actually have.
That matters because the parts float is a revolving need. It comes back every month. Funding a revolving need with a fixed-term product means you finance it once, repay it over six to twelve months out of gross margin, and then you have the same gap again. The structures that fit a revolving need are a line of credit, a larger and better-used supplier account, or both.
The comparison to run this week
Work through these in order. All five take numbers you already have.
- Pull your last three months of parts purchases by supplier, and write down the terms each one actually offers — not the terms you remember.
- Calculate the annualised cost of each discount you are skipping. The formula is the discount divided by one minus the discount, multiplied by 365 divided by the number of days you gain by skipping. A 2/10 net 30 is 37.2 per cent. A 1/10 net 30 is 18.4 per cent. A 2/10 net 45 is 21.3 per cent, because the extra days are worth more.
- Calculate the float you need to take the largest one. Daily purchase rate multiplied by the days you would move up.
- Get a real quote for that amount on a revolving facility and convert it to a monthly cost in dollars. If the product quoted is a factor-based advance rather than a line, note that repaying it early does not necessarily reduce the cost — check what early repayment saves on each product type before you assume it does.
- Compare the two dollar figures. Not the rates. The dollars, per month.
What to ask your distributor before you ask a lender
Suppliers extend credit for commercial reasons and will often move on terms before a lender will move on price. Specific asks that get said yes to:
- A higher limit tied to a purchase commitment, rather than an unconditional increase.
- Dating on a seasonal stocking order — pay in ninety days for an air-conditioning season buy made in March.
- A discount on a larger account, even where the published terms are net 30. Distributors price discounts against their own cost of money and their desire for your volume.
- Consignment on slow-moving or high-value stock, so the inventory sits on your shelf and their balance sheet.
- Return rights on obsolete stock, with the restocking fee named in writing.
What to refuse
Refuse to take an advance to pay down a parts account that is current and carrying no discount. You are swapping free credit for priced credit and getting nothing. Refuse a supplier limit increase you cannot describe a use for in one sentence. And when a funder tells you the advance is for "parts and payroll", get specific about which one — if it is parts, the comparison above is the whole decision, and if it is payroll, the shop has a margin problem that no financing product fixes.
Where this applies
Related questions
Is a bigger parts account cheaper than a working capital advance for a repair shop?
Usually yes, but only if you are paying inside the discount window. Trade terms like 2 per cent in 10 days, net 30 carry an implied cost of roughly 37 per cent a year when you skip the discount, which is expensive money you are already borrowing without noticing. Extending the account or raising the credit limit is cheaper than an advance when it lets you take discounts and turn parts faster; it is not cheaper when the extra limit simply funds slower-moving inventory. The decision turns on one comparison: the monthly discount you forgo against the monthly cost of funding the twenty days of float that taking it requires.
Which funding products does this apply to?
Merchant Cash Advance, Working Capital, Business Line of Credit. Each has its own page listing the funders in this directory that offer it and what each one publishes about its terms.
Is this specific to auto repair?
It is written around how a auto repair business actually generates and collects cash, which is what makes its funding problem different. The mechanics transfer; the arithmetic may not.
Who writes this?
The Find Me Funders research desk. Some drafting is AI-assisted, and every page that is says so at the top, including whether a person has checked its claims yet.
How do I know a figure here is right?
Where a page carries the green notice, its claims were checked against the sources listed at the end and a reviewer is named. Where it carries the amber one, nobody has verified it yet and you should confirm anything you plan to act on.
Are the examples real deals?
No. Every worked example is labelled illustrative and exists to show the arithmetic. What any particular lender charges is on that lender's page, where it publishes it.
Why do you never say what a typical rate is?
Because we cannot source it. A market average assembled from lenders who do not publish prices is a guess with a decimal point on it. Where a lender publishes a figure, we show that figure and say where it came from.
Is this financial or legal advice?
No. It is general information about how these products work. Outcomes depend on your contract and your state, and a lawyer or accountant licensed where you are is the person to ask about your situation.
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