What the ECB rate rise costs a technical wholesaler that gives its customers 52 days to pay

The managing director of a technical wholesaler called us the day after the ECB decision to ask what it was going to cost him. His bank had sent a letter: the interest rate on the overdraft facility would rise by a quarter percent from 16 September. He had already done the sum. At an average balance of €2.4 million that is €6,000 a year, and after the June step it was €12,000 in total. On revenue of 12 million that seemed a detail to him, and in itself that is right.

What he had not calculated was what that interest runs on. The overdraft facility is full because his customers take 52 days on average to pay an invoice and because there are 95 days of inventory in the warehouse. The interest is the price of that patience, and the bank's letter is about the smallest number in that sum.

We earn our money with calculations like this, so read the conclusions below with that in mind.

Why a quarter percent of interest barely stands out and still counts

The European Central Bank (monetary policy statement, 10 September 2026) raised its three interest rates by 25 basis points, effective 16 September: the deposit rate to 2.50 percent, the main refinancing rate to 2.65 percent and the marginal lending rate to 2.90 percent. The reason was inflation of 3.3 percent in August, driven by energy. The first step this year was on 11 June 2026, when the deposit rate went from 2.00 to 2.25 percent. The ECB explicitly adds that it is not committing to a rate path and decides meeting by meeting. So if you are drawing up a budget for 2027, you cannot count with any certainty on this being the last step.

A bank passes this rise on almost one for one in the overdraft facility, because its rate is linked to the money market rate plus a margin. On a drawn amount of €2.4 million, a quarter percent is €6,000 a year. Two steps is €12,000. Interest is deductible, so at the low corporate income tax rate of 19 percent, €9,720 net remains. On revenue of €12 million that is 0.08 percent.

For the managing directors we speak to, that figure is the reason to put the bank's letter aside. We see at trading companies that interest costs only become a topic once the limit comes into view, and then the conversation is about the limit and rarely about the cause. The cause is on the balance sheet: receivables and inventory.

What the theory says: the cash conversion cycle and the price of trade credit

The model that makes this clear is the cash conversion cycle of Richards and Laughlin (Financial Management, 1980, peer reviewed; the article is behind a paywall and there is no free version online). They add the number of days money is tied up in inventory to the number of days a customer takes to pay, and deduct the number of days you yourself can wait to pay your supplier. The result is the number of days you have to pre-finance every euro of purchases before it comes back as revenue. For a wholesaler that number is large, because he advances money twice: first to the supplier, then to the customer.

That model has since been backed up empirically. Deloof (Journal of Business Finance & Accounting, 2003, peer reviewed) found among 1,009 large Belgian non-financial companies over 1992 to 1996 that gross profit falls as receivable and inventory periods get longer, and that less profitable companies pay their suppliers later. Kieschnick, Laplante and Moussawi (Review of Finance, 2013, peer reviewed) calculated for US listed companies over 1990 to 2006 that an extra euro in working capital is worth less to shareholders than an extra euro in cash, and that this result becomes more strongly negative the more debt a company has and the harder it is for it to obtain financing. Notably in their results: an extra euro lent to customers has a larger effect on shareholder value than an extra euro in inventory. Boisjoly, Conine and McDonald (Journal of Business Research, 2020, peer reviewed) show over 1990 to 2017 that companies have structurally shortened their cash conversion cycle and that shorter cycles go together with a higher return on invested capital and a higher valuation.

The second half of the theory is about why a wholesaler gives customers credit at all, the trade credit. Petersen and Rajan (Review of Financial Studies, 1997, peer reviewed) show that suppliers extend credit because they know their customers better than a bank does, because they can more easily take back goods they have delivered, and because they have an interest in the customer's survival. According to them, companies with good access to bank credit give more trade credit, while companies without that access use more of it. A wholesaler sits exactly between those two positions. Ng, Smith and Smith (Journal of Finance, 1999, peer reviewed) studied the payment terms themselves and found that a discount for early payment is mainly a tool for bringing information about the customer's creditworthiness to the surface: a customer who lets the discount lapse pays an implicit annual rate of tens of percent (37 percent in the worked example below) and in doing so tells you something about his own liquidity. And McGuinness, Hogan and Powell (Journal of Corporate Finance, 2018, peer reviewed) found among 202,696 European SMEs over 2003 to 2012 that trade credit received reduces the likelihood of financial distress, and that it is mainly cash-rich companies that are net providers of credit. The wholesaler that waits 52 days for its money is therefore acting as its customers' bank. That role is a choice, and the rate rise makes it more expensive.

How common it is for working capital to be financed with bank money is shown by the CBS Financieringsmonitor 2025 (statistics, February 2026): in the period July 2024 to July 2025, 15 percent of SMEs had a financing need, and of the companies that obtained financing, 37 percent named inventory as the purpose and for 41 percent a bank loan was the form (multiple answers possible). At the same time, the large banks' outstanding credit to SMEs fell by 3.9 percent in 2024. So the bank is still financing the wholesaler's working capital, at a rate that went up twice this year, and doing so with less and less enthusiasm.

Worked example: a technical wholesaler with €12 million revenue

In this worked example a technical wholesaler in fasteners and tools has revenue of €12 million excluding VAT, a gross margin of 27 percent and therefore a cost of goods of €8.76 million. Customers are installers, contractors and industrial companies. The payment condition on the invoice is 30 days, the actual average payment term (days sales outstanding, DSO) is 52 days. Inventory sits for 95 days on average, because the promise "ordered today, delivered tomorrow" requires a broad range. Suppliers are paid after 40 days. The interest rate on the overdraft facility was 4.6 percent at the start of 2026 (assumption in this example) and is 5.1 percent after the two rises. The average balance is €2.4 million against a limit of 2.8 million.

Receivables are on the balance sheet including VAT. Revenue including VAT is €14.52 million, which is €39,781 a day. At 52 days, €2,068,600 is outstanding. Inventory is at cost: 8.76 million divided by 365 is €24,000 a day, times 95 days is €2,280,000. Payables are also including VAT: 10.6 million of purchases is €29,040 a day, times 40 days is €1,161,600. The working capital the wholesaler has to finance is 2,068,600 plus 2,280,000 minus 1,161,600, which is €3,187,000. The cash conversion cycle is 52 plus 95 minus 40, which is 107 days. The overdraft facility of 2.4 million covers three quarters of that; the rest comes from equity.

From 4.6 to 5.1 percent on 2.4 million is €12,000 extra a year. Total interest on the overdraft facility is €122,400. The interest attributable to the receivables position alone is 2,068,600 times 5.1 percent, which is €105,500 a year. One day of average payment term is €39,781 of money outstanding and at the new rate costs €2,029 a year in interest.

The bank's letter was about €12,000, while the payment term the wholesaler sets itself costs €105,500 a year. If the wholesaler brings the average payment term from 52 to 42 days, €397,800 is freed up and interest costs fall by €20,300 a year. That is almost twice the effect of both ECB steps together, and the overdraft facility drops from 2.4 to 2.0 million, which gives the wholesaler headroom it needs for the next growth step. If revenue grows by 10 percent next year and the days stay the same, working capital grows along by €318,700 and the overdraft facility stands at €2,718,700, €81,300 below the limit. Why growth turns the bank into a brake in this way we calculated earlier in the article on an installation company that gets stuck at the bank.

Why the average of 52 days hides the problem

An average payment term is a weighted average of customers who behave differently, and the average smooths out exactly the part where the money is. In this worked example revenue consists of three groups. Sixty percent of revenue comes from customers who pay after 38 days on average, and another 25 percent from customers who pay after 60 days. The remaining 15 percent comes from larger contractors and industrial customers who keep to their own payment calendar and pay after 95 days. Weighted, that is 0.6 times 38 plus 0.25 times 60 plus 0.15 times 95, which is 52 days.

The last group is 15 percent of revenue, but 27 percent of the receivables balance: €5,967 a day times 95 days is €566,900. The first group is 60 percent of revenue and 44 percent of receivables. Behind the average of 52 days there is therefore a 95-day problem with a handful of customers. That a small share of customers ties up a large share of the money is the same pattern we described in the article on the Pareto principle as a risk meter. Bringing just the 95-day group back to 60 days, which the second group already does, frees up €208,800 and saves €10,700 interest a year, without bothering the 85 percent of customers who pay reasonably.

At 5.1 percent interest, 95 days of credit costs 1.61 percent of revenue excluding VAT, because the interest runs on the amount including VAT. On a gross margin of 27 percent that is 5.9 percent of the margin you make on that customer. At 38 days it is 2.4 percent of the margin. A customer who pays in 95 days and has also negotiated an extra 3 percent discount because he is large therefore visibly yields less per euro of revenue than the smaller customer who pays within the term. That difference almost never appears in the margin reports we see, because interest is one line below operating profit there and is not allocated per customer.

What an acceptable payment term is and when you achieve it

What is acceptable differs per wholesaler and per market. The law and your own invoice give two anchor points. Since 1 July 2022, under article 6:119a(6) of the Dutch Civil Code (act in Bulletin of Acts and Decrees 2022, 146, entry into force Bulletin of Acts and Decrees 2022, 175; explanation in the Nederlands Juristenblad, a legal journal), a large company may not agree a payment term longer than 30 days with an SME supplier; a longer term in a contract is void, 30 days then applies and after that statutory commercial interest accrues. For the group of large contractors paying after 95 days, the standard is therefore already set by law. Between SMEs, 60 days applies as the upper limit unless otherwise agreed, and what you put on the invoice is the starting point.

We see at trading companies that an actual average payment term of contract term plus ten days is very achievable with tight, friendly follow-up, and that anything above contract term plus twenty days points to a process that is not working. In those cases invoices go out late or disputes are left lying, and some customers know that nobody will call anyway. The table below shows per customer group what is acceptable in this worked example and what getting there yields.

The amounts are the daily value per group times the difference in days: €23,868 times 3, €9,945 times 15, and €5,967 times 50 to 65. All three together is €519,000 to €609,000 less on the overdraft facility, and €26,500 to €31,000 less interest a year. That is the upper limit of what is in the receivables; in practice you achieve part of it, because with the large contractors you also negotiate on price and volume and the payment term is one of the chips on the table.

How a wholesaler shortens its receivables position without losing customers

Start by allocating interest to customers, internally, in the margin report. Take the 5.1 percent from this example, multiply by the customer's actual payment term divided by 365 and by 1.21 for VAT, and deduct that from the gross margin. The customer who pays after 95 days then loses 1.6 percent of his revenue to financing costs. This makes the payment term part of customer profitability and shifts the conversation from "he pays late" to "he is 6 percent less profitable than he looks". This is our experience, and it is the part that meets resistance from sales fastest at the wholesalers we work with, because the largest customers come out worst.

An early payment discount is the step often proposed next, and in this worked example it turns out expensive. The classic condition from the research by Ng, Smith and Smith is a 2 percent discount for payment within 10 days, otherwise the full amount after 30 days. For the customer, letting the discount lapse is an expensive choice: 2 percent for 20 days' delay is 37 percent a year, 45 percent compounded. For the wholesaler, however, offering that discount is also expensive. Giving away two percent discount to have money 20 days earlier saves 0.28 percent in financing costs at 5.1 percent interest. Even calculated from the actual 52 days, the saving is 0.59 percent. So the discount costs three to seven times what it yields, and the customers who were already paying on time take it first. In this example an early payment discount is only defensible as an information tool, exactly as Ng, Smith and Smith describe it: the customer who structurally lets it lapse is telling you that his liquidity is tight, and that is a signal for your credit limit. As a financing tool it loses out to plain follow-up.

In our experience, a credit limit per customer that you actually enforce yields more. Petersen and Rajan show that a supplier gives credit because he knows his customer better than the bank does. So use that knowledge: link the limit to the actual payment term and to the outstanding balance, have the system block an order as soon as the limit is reached, and have sales call before the accounts department sends a letter. We see that most wholesalers do have a limit in the system, and that it is routinely exceeded for the fifteen largest customers because nobody dares to hold back the order.

According to the table, there is a larger amount on the inventory side than in receivables. One day of inventory in this example is €24,000 and costs €1,224 interest a year. If 20 percent of inventory value consists of items that turn over less than once a year, €456,000 sits there costing €23,300 interest a year, apart from the space, the risk of obsolescence and the write-downs. Kieschnick and colleagues found that a euro of receivables weighs more heavily in valuation than a euro of inventory, and in this example a day of receivables at €39,781 is also more money than a day of inventory at €24,000. That is why receivables come first here. Inventory comes next, with the same calculation per product group.

Paying suppliers ten days later saves €290,400 on the overdraft facility in this example. Deloof found, however, that it is precisely the less profitable companies that pay their suppliers late, and Petersen and Rajan that trade credit is the most expensive credit as soon as you let a discount lapse for it. Paying later only works if it is an agreed condition; a silent extension strains the supplier relationship and in time costs you the discount or delivery priority.

Factoring or a borrowing base facility, where the bank finances up to a percentage of receivables and inventory, moves with revenue and prevents a fixed limit of 2.8 million from blocking growth. In the quotes we see, the rate is above that of an ordinary overdraft facility, and factoring removes the incentive to shorten the payment term yourself. See it as a safety net for growth, while the 52 days themselves sit in your own process.

When this does not apply

The worked example assumes a wholesaler that finances its working capital at the bank. A trading company with a positive cash position does not pay 5.1 percent, and may earn 2 percent on its balance; the price of a day of payment term is therefore less than half there, and the trade-off against customer satisfaction comes out differently. The same goes for a wholesaler in a market where the payment term is the only thing that still sets it apart: Petersen and Rajan also describe trade credit as an investment in the customer relationship, and McGuinness, Hogan and Powell show that cash-rich companies keep their customers afloat through credit in a crisis. If your customers are installers who would go under without your terms, 52 days is sometimes a deliberate and defensible choice. It must then be a choice with a price you know, and that price is now €12,000 higher than at the start of this year. If your largest customers fall under the 30-day law and you already achieve that term, you have already captured most of the gain from this calculation.

The do-it-yourself version

The proper method is a cash conversion cycle per customer group and per product group, with interest allocated in the margin report and updated monthly. That requires a system that stores payment dates per invoice and a controller who makes the link.

The do-it-yourself version takes an afternoon with the aged receivables analysis from your accounting software. Sort the open items per customer, divide the outstanding amount per customer by his revenue including VAT over the last twelve months and multiply by 365. That is his actual payment term in days, and we see that it almost always differs from what sales thinks. Put the interest rate from your latest bank statement next to it, multiply the outstanding amount per customer by that rate and you have the annual interest cost per customer. Do this for your twenty largest customers; at technical wholesalers we see that they cover more than half of receivables. Do the same calculation for inventory per product group, using the turnover rate from your inventory report. If you then put the five most expensive customers and the five slowest product groups on one sheet of A4, you have the agenda for a management meeting we rarely see held. How to keep such figures in a monthly cycle is described in the article on rolling forecasts.

Frequently asked questions about rate rises and payment terms in wholesale

What does the ECB rate rise mean for my overdraft facility?

On 10 September 2026 the ECB raised its interest rates by a quarter percent, effective 16 September, after an earlier step in June. Banks pass that on almost one for one in the overdraft facility. With an average drawn amount of €2.4 million, each step is €6,000 a year in interest, before tax. The ECB has said it is not committing to any further rate path.

What does it cost if my customers pay after 50 days on average?

Multiply your daily revenue including VAT by the number of days and by your interest rate. At €12 million revenue excluding VAT, one day is €39,781; 50 days is €1,989,000 outstanding and at 5.1 percent interest costs €101,400 a year, 52 days is €2,068,600 and €105,500 interest. In that example each day shorter saves €39,781 in the bank and €2,029 interest a year.

How do I calculate the cash conversion cycle of my wholesale business?

Add receivable days (receivables divided by daily revenue including VAT) to inventory days (inventory divided by daily cost of purchases) and deduct payable days (payables divided by daily purchases including VAT). In the example that is 52 plus 95 minus 40, so 107 days. That is the number of days you pre-finance every euro of purchases; the model comes from Richards and Laughlin (1980).

Is a 2 percent early payment discount a sensible way to get paid faster?

Not as a financing tool in the worked example. Two percent discount for paying 20 days earlier costs you 2 percent of revenue and at 5.1 percent interest saves 0.28 percent. Even calculated from an actual term of 52 days, the saving is 0.59 percent. The discount is useful as a signal: a customer who structurally lets it lapse would rather pay 37 percent a year than pay now, and according to Ng, Smith and Smith (1999) that says something about his liquidity.

What is an acceptable payment term (DSO) for a technical wholesaler?

Since 1 July 2022, large companies may by law (article 6:119a(6) of the Dutch Civil Code, Bulletin of Acts and Decrees 2022, 146) not make an SME supplier wait longer than 30 days. Between SMEs, 30 days on the invoice is customary and 60 days the upper limit. We see that an actual average term of contract term plus ten days is achievable with consistent follow-up; contract term plus twenty days or more points to a process that is not working.

Should I switch to factoring now that interest rates are rising?

Factoring or a borrowing base facility lets your financing move with revenue and prevents a fixed limit from blocking your growth. In the quotes we see, the rate is above that of an overdraft facility, and it removes the incentive to shorten your own payment term. First calculate what is freed up if you bring the slowest 15 percent of your customers to the contract term; in the example that is €208,800, without extra financing costs.

Why do I shorten the payment term first and only then the inventory?

Kieschnick, Laplante and Moussawi (2013) found that an extra euro lent to customers has a larger effect on shareholder value than an extra euro in inventory. In the worked example a day of receivables is also more money than a day of inventory (€39,781 against €24,000), because the invoice includes margin and VAT and inventory is at cost. And you set the payment term with your own process, while inventory is tied to your delivery promise. You only extend supplier terms by agreement.

Further reading: Why an importing wholesaler sees a 39 percent margin on an item that yields 25 percent after freight, import duty and currency, Why a profitable SME still gets stuck on cash flow, Why a profitable installation company gets stuck at the bank as soon as it grows faster than its profit allows and Rolling forecasts: steering in a moving market. New: Why an importing wholesaler with €9 million revenue pre-finances almost €3 million and is in the red despite making a profit. New: What one day of working capital is worth to a metal supplier with €10 million revenue and which lever it should pull first.

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