Supplier concentration
What is supplier concentration, and when does it become a credit risk?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
Supplier concentration is a business's dependence on one or a few suppliers for inputs, products or licences it cannot easily replace. A lender asks what would happen if the main supplier failed, raised its prices, shortened its payment terms or chose to sell direct: how long the business could keep trading, what switching would cost, and whether the supplier's retention-of-title claim covers stock the lender is counting as security. A loan to a distributor that buys most of its range from one brand under a short-notice agreement is, in practice, a loan against that agreement.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WHAT IT IS NOT
Customer concentration is dependence on a few buyers for revenue; supplier concentration is dependence on a few sellers for what the business needs in order to trade.
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