Channel finance interest, interest-free days, inventory days, and the working capital a brand's minimum stock and deposit lock up.
By Manoj Sahukar· October 2026 · 9 min read
How numbers are rounded on these pages. Calculations are done at full precision and rounded only at the end, half up. Rupee amounts are rounded to the nearest rupee unless shown with paise, in which case to the nearest paisa. Percentages are shown to two decimal places, days to one decimal place, and payback periods in years to two decimal places. Interest for a number of days uses a 365-day year (simple interest). Break-even job counts and units needed to cover a cost are rounded up to the next whole number. All examples and quiz questions are Hypothetical: they show the method, not real prices or rates.
Dealer stock financing and inventory days
Many brands tie up with banks or finance companies so dealers can pay for stock on credit. This is usually called channel finance (or dealer or inventory finance): the lender pays the brand when stock is invoiced, and you repay within an agreed period. Interest is charged on the amount outstanding for the days it is outstanding, sometimes after an interest-free period that the brand pays for. Terms vary by brand and lender.
The longer a unit sits in your showroom, the more interest it eats out of its margin. That is why inventory days matter so much to a dealer.
The standard formulas
Interest = Amount financed × Rate × Days outstanding365
Per unitInterest per unit = Unit cost × Rate × Days held − Interest-free days365
Inventory days = Average stockCost of goods sold × 365
Whole business (approximation)Approximate yearly interest = Cost of goods sold365 × Chargeable days × Rate
Terms used
Channel finance
Credit from a bank or finance company, arranged with the brand, to pay for the dealer's stock.
Interest-free period
Days at the start for which the dealer pays no interest, if the scheme offers it.
Chargeable days
Days for which interest is actually charged: days held minus any interest-free days.
Inventory days
How many days, on average, stock sits before it is sold.
Worked examples
HypotheticalBasicInterest on a stock drawdown
₹10,00,000 of stock is financed at 11% a year for 45 days.
A two-wheeler costs the dealer ₹70,000 and earns a margin of ₹3,500. Channel finance is 11% a year with the first 15 days interest-free.
Sold on day 40: 25 chargeable days; interest = ₹70,000 × 11% × 25 ÷ 365 = ₹527.40, or 15.07% of the margin
Sold on day 75: 60 chargeable days; interest = ₹1,265.75, or 36.16% of the margin
HypotheticalAdvancedThe yearly interest bill and the value of faster stock
Yearly cost of goods sold is ₹6,00,00,000. Stock sits 50 days on average; the first 10 are interest-free; the rate is 10.5%. This is an approximation that assumes steady purchases.
If inventory days fall to 35 (25 chargeable): ≈ ₹4,31,506.85
Saving ≈ ₹2,58,904.11 a year
Working capital for a brand's minimum stock
Brands often require a dealer to keep a minimum stock: display models, the full range of colours or sizes, and a set of spares. That stock is money. Add what customers and finance companies owe you, subtract the credit the brand or lender gives you, and the difference is the working capital you must find yourself.
Add any security deposit held by the brand, and you have the total of your own money locked in. Multiply by what that money costs you to see the yearly price of the dealership's stock rules.
The standard formulas
Minimum stock value = Σ (Units required × Unit cost)
Working capitalWorking capital needed = Stock (at cost) + Receivables − Payables and stock finance
What it costsOwn money locked in = Working capital + Security depositYearly cost = Own money × Your cost of money
Terms used
Minimum stock
The stock a brand requires you to hold, by model, size or value.
Receivables
Money owed to you, for example by customers, finance companies or insurers.
Payables / stock finance
Credit the brand or a lender gives you for stock you have not yet paid for.
Stock ₹12,00,000; finance companies and customers owe ₹4,00,000; the brand gives credit of ₹5,00,000.
Working capital = ₹12,00,000 + ₹4,00,000 − ₹5,00,000 = ₹11,00,000
HypotheticalAdvancedWhat the stock rules cost each year
The brand also holds a security deposit of ₹5,00,000, interest-free. The dealer's money costs 12% a year, and each unit sold earns ₹4,000 margin.
Own money locked in = ₹11,00,000 + ₹5,00,000 = ₹16,00,000
Yearly cost = ₹16,00,000 × 12% = ₹1,92,000
Units he must sell just to cover it = ₹1,92,000 ÷ ₹4,000 = 48 units
Quiz: stock financing and minimum-stock working capital
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