Why does Petro Stopping Center sometimes use promissory notes to pay its suppliers?
Petro_Stopping_Center Franchise · 2025 FDDAnswer from 2025 FDD Document
The Company sometimes uses promissory notes to pay its suppliers and other counterparties. This is primarily done to facilitate the counterparty accelerating its cash inflow without also accelerating the Company's related cash outflow. For instance, if a supplier to the Company's supply, trading and shipping business would like prepayment or early-payment for a supply of goods, the Company may issue a promissory note (payable at a future date) in favor of that supplier on the supplier's desired cash inflow date, which that supplier can then convert to cash by selling it to a finance provider on the sameday. The majority of promissory notes the Company issues accrue interest on the principal amount of the note at a fixed rate stated on the note from issuance to maturity. This is done to give the supplier or other counterparty certainty about the amount they will receive when they sell the note. It also gives the Company flexibility to select the maturity date of the note without that impacting the net present value of the note on its issuance date. The maturity date the Company elects for any promissory note that is for the purchase of goods by its supply and trading business will be no more than 60 days after the Company takes (or expects to take) title to those goods.
A portion of the Company's trade payables form part of a reverse factoring arrangement with select suppliers.
Source: Item 14 — Other investments (FDD pages 131–208)
What This Means (2025 FDD)
According to the 2025 FDD, Petro Stopping Center sometimes uses promissory notes to pay its suppliers to help the suppliers get cash faster without speeding up Petro Stopping Center's own cash payments. This arrangement benefits the supplier by allowing them to receive early payment for goods supplied.
For example, if a supplier wants to be paid sooner for delivering goods to Petro Stopping Center's supply, trading, and shipping business, Petro Stopping Center might give the supplier a promissory note. This note promises payment on a future date. The supplier can then sell this note to a finance provider to get cash right away.
Most of the promissory notes that Petro Stopping Center issues include interest at a fixed rate. This gives the supplier confidence about how much money they will receive when they sell the note. It also allows Petro Stopping Center to choose when the note matures without changing its value on the issue date. For goods purchased by Petro Stopping Center's supply and trading business, the maturity date of these notes will not be more than 60 days after Petro Stopping Center takes ownership of the goods. Petro Stopping Center also uses reverse factoring with some suppliers for trade payables.