Supply chain finance (SCF) is a financing solution that enables companies to offer early payment options to their suppliers. With supply chain finance, suppliers can receive early payment for their approved invoices from a bank or finance provider, while the buyer sends payment to the financial institution on the invoice’s maturity date.
What It Is #
SCF is also known as reverse factoring, although the term “supply chain finance” encompasses a range of supplier financing solutions. In contrast to traditional factoring, SCF is initiated by the purchasing company rather than the suppliers to finance their accounts receivable.
Supply chain finance is provided through a buyer-led programme where sellers in the buyer’s supply chain can access finance through receivables purchases. It provides sellers with the option of receiving the discounted value of receivables (represented by outstanding invoices) prior to their actual due date, typically at a financing cost aligned with the credit risk of the buyer. The payable continues to be owed by the buyer until its due date.
This type of finance reduces the risk of supply chain disruption and strengthens supplier relationships while improving the buyer’s working capital.