Trade credit is the largest source of short-term finance in the economy and almost none of it is arranged. A supplier delivers, invoices on thirty-day terms, and waits. The waiting is a loan, unpriced and unsecured, and the supplier is the lender.
What has been happening is that the loan is quietly being extended. Invoices agreed at thirty days settle at forty, then forty-five, with no renegotiation and no conversation — because the party doing it is large, the party absorbing it is not, and the contract remedy costs more than the delay.
Stretching payables is a financing decision made by someone who is not a lender
From the buyer's side this is rational and looks free. Every extra day of payables is a day of working capital retained, and when other credit tightens — as it has, visibly, since equipment finance stopped being the easy line — the cheapest available facility is the one you can take unilaterally.
From the supplier's side it is a funding gap that has to be filled somewhere, usually by drawing on a facility that does have a rate attached. The cost has not disappeared. It has moved from the party with the best credit to the party with the worst, which is precisely backwards from how the financial system is supposed to allocate it.
The remedies are weak in practice. Prompt payment rules exist in public contracting and rarely reach private supply chains. Interest on overdue invoices is contractually available and almost never invoked, because a supplier invoicing interest to its largest customer has made a decision about the relationship, not about the invoice.
What suppliers actually do is price it in, which is worse for everyone. Quotes rise to cover the expected float, so the buyer pays more for the goods and the supplier carries the cash flow risk anyway — an arrangement that costs both parties more than agreeing terms honestly would.
Supply chain finance is offered as the answer and deserves a closer look than it usually gets. A bank pays the supplier early at a discount and collects from the buyer later, which does solve the cash timing. It also formalises the extended terms, and it makes the buyer's payables look like trade credit rather than debt — which is a presentational benefit the supplier is funding.
The businesses least able to absorb any of this are the ones changing hands as their owners retire, where a stretched receivable is the difference between a sale price and a distressed one. And a buyer that has mapped its supply chain properly knows exactly which of its suppliers cannot carry the float, because that is the tier that stops the line.
