Glossary · Invoice finance
Supply chain finance
Also called Reverse factoring
Supply chain finance lets suppliers of a large buyer get invoices paid early by a funder, at a cost based on the buyer’s credit rating.
In supply chain finance, a large buyer sets up a programme with a bank or platform. Once the buyer approves a supplier’s invoice, the supplier can choose to be paid early by the funder, minus a discount. The buyer then pays the funder in full on the original due date.
Because the funder relies on the buyer’s credit, not the supplier’s, the discount is often cheaper than a small supplier could get on its own. That is the selling point.
The criticism is that programmes often come with longer payment terms: the buyer extends terms to 90 or 120 days and offers early payment, at the supplier’s cost, as the remedy. Accounting regulators have also required buyers to disclose these programmes, because they can make a buyer’s debts look smaller.
Example
A retailer moves suppliers to net 90 and launches a supply chain finance programme. A supplier with an approved €20,000 invoice takes payment on day 10 for €19,600, and the funder collects €20,000 from the retailer on day 90.