Quick answer
Borrowing to take up a supplier's bulk-buy or volume deal can make sense when the saving on the stock clearly exceeds the total cost of finance, the stock will sell within a reasonable time, and you have room to store it properly. It rarely makes sense for slow-moving, perishable or trend-driven stock, or when the deal locks up cash you need elsewhere.
Key points
- Compare the dollar saving with the total cost of finance, not a percentage.
- Only buy what you can sell well before it expires or dates.
- Storage, insurance and handling are real costs of buying big.
- No credit check when you first enquire.
- Line of credit
- Typically $5k – $500k
- Key test
- Saving vs total finance cost
- Best for
- Fast-moving, non-perishable lines
- To enquire
- About 60 seconds
Every so often a supplier rep walks in with an offer: take three months’ worth instead of one and the price drops. Or a clearance line comes up that you know your customers will love. The maths looks obvious on the order form. Whether it’s actually a good deal depends on a few things the order form doesn’t mention.
The simple test
Before borrowing to take up a volume deal, work through four questions.
- What’s the dollar saving? Compare the total you’d pay with the deal against what you’d pay buying your normal quantities over the same period. Use dollars, not percentages.
- What’s the total cost of the finance? Include all fees and charges for the period you’ll have the money borrowed. Ask for this figure in dollars too.
- How quickly will it sell? Be realistic. If it’s normally a month’s stock and you’re buying three months’ worth, you’ll carry it for three months.
- What else does it cost to hold? Storage space, refrigeration, insurance, handling, breakage and the risk of it dating or expiring.
If the saving comfortably exceeds the finance cost plus holding costs, and you’re confident it will sell, the deal is probably worth doing. If it’s close, it usually isn’t worth the risk.
| Stock type | Suits bulk buying? |
|---|---|
| Popular beverages, packaged drinks | Often, if storage allows |
| Coffee beans | Only in quantities you’ll use while fresh |
| Takeaway packaging, cups, napkins | Often; low risk if you have space |
| Dry pantry goods | Often, within use-by dates |
| Fresh produce, dairy, flowers | Rarely |
| Fashion and seasonal gifts | Risky; trends move |
| Staple retail lines with steady sales | Often |
Better terms can beat a discount
Sometimes the best deal isn’t a lower price but more time to pay. If a supplier offers extended payment terms, you might be able to sell much of the stock before you pay for it, reducing or removing the need for finance at all. It’s worth asking suppliers which they’d prefer to offer, especially if you’ve been a reliable customer.
Business.gov.au suggests timing when you spend and receive money as one of the core ways to improve cash flow. Negotiating supplier terms is a direct application of that.
Where finance fits
If the numbers work and you need funding to take up the deal, a line of credit is often the most flexible option: draw when the opportunity comes up, and pay it down as the stock sells. A short-term loan with a fixed end date can suit a single large purchase. Unsecured, cash-flow and line-of-credit options for trading businesses typically run from $5,000 to $500,000, sized on turnover and bank statements. If you’d like to know what’s available, make a quick enquiry with no credit check at the first step.
An illustrative example
Illustrative only. An independent bottle shop is offered a better price on a popular beer if it takes a much larger order before summer. The owner works out the dollar saving against normal ordering, asks for the total cost of drawing on a line of credit for the ten weeks she expects the stock to take to sell, and confirms the cool room and storeroom can hold it. The saving clearly exceeds the finance cost, so she takes the deal, drawing the line of credit when the invoice falls due and paying it down through December. A second offer on a slower-selling wine doesn’t pass the same test, so she declines it.
Don’t let a deal crowd out the essentials
A bulk buy ties up cash. If that cash would otherwise cover wages, rent or a BAS payment in a quiet month, the “saving” can end up costing far more. Before committing, check your seasonal trade planner to see where your lowest cash point falls. If the bulk buy pushes it too low, either reduce the order or arrange funding that doesn’t compete with your essentials.
And remember the stocktake. The ATO requires all businesses to account for trading stock at the end of each income year, so a large purchase in May or June will show up in your closing stock. Our page on EOFY stocktakes and equipment explains why that matters.
Questions to ask the supplier
- Can I take delivery in stages while locking in the price?
- Are there extended payment terms instead of, or as well as, the discount?
- What happens to unsold or damaged stock?
- How long is the deal available?
- Are there minimum orders for future deals if I take this one?
For more on funding stock generally, see retail stock finance, and for venue-specific examples, bottle shop loans and deli and grocer loans.
Got a deal on the table?
If a supplier offer looks good and you’d like funding ready to act on it, start with a short enquiry. It takes around 60 seconds, and there’s no credit check when you first enquire. We don’t share your details with a throng of lenders; a real person looks at your business and the deal and calls you with options that fit. Please answer the form accurately, including the amount and how quickly the stock will sell, so we can match you properly first time.
Frequently asked questions
Is it worth borrowing to get a bulk-buy discount?
Sometimes. If the dollar saving on the stock is clearly bigger than the total cost of the finance, the stock will sell within a reasonable time, and you can store it properly, it can be a good move. If any of those is doubtful, it usually isn't.
What kinds of stock suit bulk buying?
Fast-moving, non-perishable lines with steady demand, such as popular beverages, packaging, dry goods or staple retail lines. Perishables, fashion and trend-driven stock are riskier.
What's the hidden cost of buying in bulk?
Storage space, insurance, handling, the risk of damage or expiry, and the cash tied up that can't be used for anything else until the stock sells.
Should I use a loan or a line of credit for a bulk buy?
A line of credit suits repeated opportunities, since you draw when a deal comes up and repay as stock sells. A short-term loan with a fixed end date can suit a one-off large purchase.
Do suppliers offer better terms instead of discounts?
Sometimes. Longer payment terms can be as valuable as a discount, because they reduce how long you need to fund the stock yourself. It's worth asking.