What is my overall net financial cost, after trade discount?

johnchoo

Hello, I have a question concerning the overall net financial cost for the entire cash conversion cycle.
Assumes the following:
1. My supplier offers 1% trade discount for 30 days; therefore annualized interest rate is say 12%. I choose to pay my supplier upfront to take advantage of the 1% trade discount.
2. My manufacturing lead time is 60 days
3. I charge my buyer 1% more for offering 30 days credit term; therefore annualized interest rate is say 12%.
4. My overall cash conversion cycle is 90 days - from paying supplier to receiving payment from buyer
5. My bank charges me 6% interest for the 90 days period

Question – what is my overall net financial cost? When I pay my supplier upfront, I “earned” the 12%. When I extend credit term to my buyer for 30 days, I also “earn” this 12%. But at the same time I am using the bank’s money to fund this, including my manufacturing lead time at 6%.

Thank you