Supply chain finance, also known as supplier finance or reverse factoring, is a financing solution in which suppliers can receive early payment on their invoices. Supply chain finance reduces the risk of supply chain disruption and enables both buyers and suppliers to optimize their working capital.
Unlike other receivables finance techniques like factoring, supply chain finance is set-up by the buyer instead of by the supplier. Another key difference is that suppliers can access supply chain finance at a funding cost based on the buyer’s credit rating, rather than their own. As a result, suppliers are typically able to receive supply chain finance at a lower cost than with other financing methods.
The term supply chain finance is also sometimes used generically to describe a broader range of supplier financing solutions, including solutions like dynamic discounting, in which the buyer funds the program by enabling suppliers to access early payment on invoices in exchange for an early payment discount. However, the term is more commonly used as a synonym for reverse factoring.