Paid Before It PaysNarrow moat

Costco Wholesale (COST) — moat facet

Accounts payable exceed the entire inventory, so the suppliers finance the stock and about three billion dollars besides.

The single sentence in Costco's 10-K that explains most of its balance sheet is this: "We often sell inventory before we are required to pay for it, even while taking advantage of early payment discounts."1

Payables against inventories ($M)$18,116MFY2025 inventories$19,783MFY2025 payables$19,418MQ3 FY2026 inventories$22,363MQ3 FY2026 payablesSuppliers finance the entire stock and $2,945M besides.
The 10-K says it in one sentence: 'We often sell inventory before we are required to pay for it, even while taking advantage of early payment discounts.'

The evidence is in the numbers. At the end of fiscal 2025 accounts payable were $19,783 million against merchandise inventories of $18,116 million; at the third quarter of fiscal 2026, $22,363 million against $19,418 million2. In both cases the money Costco owes its suppliers exceeds the value of the goods on its floor — by $1,667 million and $2,945 million respectively. The stock is entirely financed by the people who supplied it, with change left over.

The mechanism is velocity rather than aggressive terms. Costco's payment terms are not unusual; its turnover is. About twenty-eight days of inventory against payment terms in the same neighbourhood means the average item is sold and the cash collected at roughly the moment the invoice falls due, and often before. And because members pay at the till in cash or card, there is essentially no receivable in between — receivables of $3,750 million are mostly vendor rebates, pharmacy insurance claims and credit-card incentives rather than customer credit3.

Add the deferred membership fees of $3,157 million and the accrued member rewards of $2,948 million and Costco is carrying about nine billion dollars of interest-free funding from suppliers and members combined. That is why operating cash flow of $13,335 million in fiscal 2025 exceeded net income of $8,099 million by so much4, and why the company holds $19,996 million of cash while carrying $5,670 million of long-term debt.

Watch the payables-to-inventory ratio, 115% at the third quarter of fiscal 2026. Above 100% the suppliers are funding the business. Falling below it would mean the stock had slowed or the terms had tightened, and either would show up in cash flow before it showed up anywhere else.

Moat trajectory: Widening

Payables exceeded inventories by $1,667 million at the fiscal year end and $2,945 million at the third quarter. The supplier float is getting larger, not smaller.

The number that tests this moat
Moat Explorer calc
Accounts payable as a share of merchandise inventories
115% at the third quarter of fiscal 2026

Above 100% the suppliers are financing the entire stock and more. Falling below it would mean the turn had slowed or the terms had tightened, and it would show in cash flow first.

How it's calculated: $22,363M of accounts payable divided by $19,418M of merchandise inventories, both from the balance sheet at May 10, 2026.
Source: Costco Form 10-Q, quarter ended May 10, 2026 ↗
⚠ Threats to the moat
⚠ THREAT 01
It Is a Loan From Suppliers, and Loans Get Repriced
Free supplier financing lasts exactly as long as the supplier's alternatives are worse.
References
  1. ReportedThe single sentence in Costco's 10-K that explains most of its balance sheet is this: "We often sell inventory before we are required to pay for it, even while taking advantage of early payment discounts." The evidence is in the numbers.
    Costco Form 10-K, fiscal year ended August 31, 2025 - Item 1 Business (membership counts and renewal rates, warehouse and gas-station counts, under 4,000 SKUs, Executive tier and the 2% reward, human capital and wages, competition, Kirkland Signature) — FY2025 · publ. October 8, 2025 · source ↗
  2. Moat Explorer calcAt the end of fiscal 2025 accounts payable were $19,783 million against merchandise inventories of $18,116 million; at the third quarter of fiscal 2026, $22,363 million against $19,418 million.
    Moat Explorer calculation - arithmetic on figures reported in Costco's Form 10-K and Form 10-Q: accounts payable less merchandise inventories ($1,667M at FY2025 and $2,945M at Q3 FY2026), foods and sundries plus fresh foods ($147,552M), Executive memberships over paid memberships (38.7M / 81.0M = 47.8%), accrued member rewards over gross margin dollars ($2,677M / $30,026M = 8.9%), the $1,250 reward cap divided by the 2% rate ($62,500), and Other International revenue as a share of the total — FY2025 and Q3 FY2026 · publ. September 2026 · source ↗
  3. ReportedAnd because members pay at the till in cash or card, there is essentially no receivable in between — receivables of $3,750 million are mostly vendor rebates, pharmacy insurance claims and credit-card incentives rather than customer credit.
    Costco Form 10-Q, quarter ended May 10, 2026 - condensed financial statements and notes (total revenue $70,527M, operating income $2,815M, diluted EPS $4.93, balance sheet, segment table, 928 warehouses) — Q3 FY2026 and the first 36 weeks · publ. June 3, 2026 · source ↗
  4. ReportedThat is why operating cash flow of $13,335 million in fiscal 2025 exceeded net income of $8,099 million by so much, and why the company holds $19,996 million of cash while carrying $5,670 million of long-term debt.
    Costco Form 10-K, fiscal year ended August 31, 2025 - Item 7 MD&A (net sales $269,912M, membership fees $5,323M, gross margin 11.12%, SG&A 9.25%, comparable-sales composition, capital expenditure, dividends and repurchases) — FY2025 · publ. October 8, 2025 · source ↗
Sources
Generated September 23, 2026