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The Interface Financial Group (IFG) provides financial resources (spot factoring, invoice discounting) to clients in over 30 industries. With over 150 offices and over 45 years of experience, IFG is ready to meet your short-term financing needs. We service companies in the US, Canada, Europe and Australia.

Dynamic Discounting, Supply Chain Finance and Invoice Finance FAQs


Dynamic Discounting

 

Q: What is Dynamic Discounting?
A: Dynamic Discounting is a form of early invoice payment to suppliers, provided by buyers.
The buyer pays its supplier early in exchange for a discount on the invoice amount. The
discount itself is “dynamic;” that is, it’s calculated daily based on how many days early the
invoice is paid.

Q: What are the benefits of Dynamic Discounting for a supplier?
A: For a supplier, dynamic discounting can provide an affordable form of short-term working
capital from the buyer itself. Compared to other sources of working capital like loans or bank
lines, this form of early payment is fast, usually hassle-free, digital, and does not require
repayment.

Q: What are the benefits of Dynamic Discounting for a buyer?
A: By deploying its excess capital to pay suppliers early, buyers can earn a discount on invoices
— thereby reducing their costs. Additionally, Dynamic Discounting can help to strengthen the
buyer’s supply chain by providing its suppliers a source of working capital.

Q: Why doesn’t my customer offer Dynamic Discounting?
A: Not all buyers offer Dynamic Discounting to their suppliers, and many lack the technology to
do so. Among those that do, buyers don’t always have the capital to continuously fund their
Dynamic Discounting program. As a result, buyers may choose to target Dynamic Discounting
to only select suppliers, or for limited period of time, or not offer it to any.

Q: Who is eligible for Dynamic Discounting?
A: Supplier eligibility for Dynamic Discounting is determined solely by the buyer. Some buyers
offer programs to all suppliers, some offer it to only a subset of suppliers, and some don’t offer
Dynamic Discounting at all. Also, availability may be sporadic, as buyers may not always have
excess cash to use for supplier early payment.

Q: Is Dynamic Discounting the same as 2/10 net 30?
A: No. 2/10 net 30 (and similar plans) refer to an offer by the suppler to accept a 2% discount
on the invoice if it’s paid within 10 days, with the entire invoice due in 30. Dynamic Discounting
differs in two key ways: First, it’s offered by the buyer to the supplier, not the other way
around. Second, the amount of the discount varies based on how many days early the invoice
is paid, which is why it’s called “Dynamic” Discounting.

 

Supply Chain Finance

 

Q: What is Supply Chain Finance?
A: Supply Chain Finance (sometime called Reverse Factoring or Payables Finance) is a buyer-
sponsored invoice early payment program, with funding provided by a third party, typically a
bank or fintech company. When the buyer’s supplier requests early payment of a confirmed
invoice, the third-party funder makes payment on the requested date, less a discount. The
funder is paid in full by the buyer on the invoice payment date. Supply Chain Finance gives
buyers the ability to help fund their suppliers’ accounts receivable, without affecting the
buyer’s working capital.

Q: What is Digital Supply Chain Finance?
A: Digital Supply Chain Finance is the next generation of Supply Chain Finance, utilizing
seamless electronic integration between buyer, supplier and funder to provide invoice early
payment as quickly and efficiently as possible. Slow and cumbersome supplier onboarding,
verification of invoices, and delivery of funds are all replaced by online systems, giving suppliers
the fastest and most reliable access to early payment funding.

Q: How does Supply Chain Finance work?
A: When a buyer’s supplier requests early payment of a confirmed invoice, a third-party
funder, engaged by the buyer, makes payment to the supplier on its requested date, less a
discount. The funder is then paid invoice amount by the buyer on the original invoice payment
date.

Q: What is a Confirmed Invoice?
A: A Confirmed Invoice is a supplier’s invoice that has been approved and scheduled for
payment by a buyer.

Q: Where can I get Supply Chain Finance?
A: Availability for any particular supplier depends on its buyer’s willingness to offer a program.
Availability may also depend on the type of Supply Chain Finance the buyer offers. For
example, bank-led Supply Chain Finance is usually available to investment-grade or near-
investment grade suppliers (but not smaller companies) due to bank risk requirements.

Q: Can all suppliers use a buyer’s Supply Chain Finance program?
A: It depends on who is providing funding for early payment. Bank-led Supply Chain Finance is
usually available to investment-grade or near-investment grade suppliers (but not smaller
companies) due to bank risk requirements. Some fintech Supply Chain Finance providers have
added the ability to fund early payment to nearly all suppliers, including the long tail. Most of
these funders require the buyer to guarantee payment of invoices that they fund. Recently new
approaches have been introduced, like IFG’s Digital Supply Chain Finance solution, where buyer
is not required to sign any guarantee.

Q: Can I get early payment of invoices if my customer doesn’t offer Dynamic Discounting or
Supply Chain Finance?
A: Yes. Dynamic Discounting and Supply Chain Finance are both buyer-led early payment
solutions; that is, they are offered by the buyer itself. But if these programs aren’t available, a
supplier can still seek early payment of an invoice through a supplier-driven solution like
factoring or invoice discounting. In this case, the supplier would work directly with a third-party
funder.

Q: What’s the difference between Supply Chain Finance and Invoice Finance?
A: Supply Chain Finance is a buyer-sponsored early payment program, with funding provided by
a third party, typically a bank or fintech company. Invoice Finance is supplier-initiated early
payment of invoices; that is, the supplier itself seeks funding of an invoice(s) from a third-party
unrelated to the buyer.

Q: What’s the difference between Supply Chain Finance and Factoring?
A: Supply Chain Finance is a buyer-sponsored early payment program, with funding provided
by a third party, typically a bank or fintech company. Factoring is supplier-initiated early
payment of invoices, involving the sale of an entire book of receivables or group of selected
invoices to a third party who then assumes responsibility for collection.

Q: What is Reverse Factoring?
A: Reverse factoring is another term for Supply Chain Finance, a buyer-sponsored invoice early
payment program. It’s called reverse factoring because it’s an early payment solution initiated
by the buyer for the benefit of the supplier, designed to help the supplier finance its
receivables.

Q: Why do companies offer Supply Chain Finance to their suppliers?
A: Across industries, companies are extending payment terms. As large corporate buyers wait
longer to be paid by their customers, they in turn increase their own terms — increasing the
amount of time they take to pay suppliers. Supply Chain Finance can help reduce the pain to
suppliers caused by extended terms. Supply Chain Finance provides an affordable way for
suppliers to finance their invoices issued to buyers who offer it. In this way, the buyer can
improve its working capital position and help to ensure the stability of its supply chain.


Invoice Finance

 

Q: What is Invoice Finance?
A: Invoice Finance refers broadly to the practice of a supplier accelerating cash by selling
receivables or borrowing against them. In its simplest terms, it’s a way of being paid early for
invoices submitted to buyers. Funds are typically advanced by a bank or specialty finance
provider.

There are numerous different types of invoice finance, including factoring, invoice discounting,
and asset-based lending. What they all have in common is that the supplier gets cash right
away based on the value of outstanding invoices, and the funder is repaid when the invoice is
paid by the buyer. Funders purchase the supplier’s invoices at a discount, or charge interest
against advanced funds if the arrangement is structured as a line of credit with a dynamic
borrowing base.

Q: Who provides Invoice Finance?
A: Invoice finance is usually provided by banks and specialty finance companies. Since the
funder will advance funds to a supplier and wait to be repaid when the invoice is paid by a
buyer, it’s important for the funder to understand the quality of the invoice and its likelihood of
being paid in full.

Q: What is Factoring?
A: Factoring is a form of Invoice Finance that involves purchasing a supplier’s invoices at a
discount. This gives the supplier immediate access to cash in exchange for invoices that will be
paid in the future by its buyers. The funder, often called a factor, generally purchases an entire
portfolio of receivables from the supplier and assumes responsibility for collection of invoices
from buyers.

Q: What is Asset-Based Lending?
A: Broadly, Asset-Based Lending refers to any loan secured by an asset like inventory and/or
accounts receivable. In the world of Invoice Finance, it refers specifically to a line of credit
secured by accounts receivable.

Q: What are the advantages of Invoice Finance?
A: Invoice Finance offers many advantages to companies seeking working capital. The process
is generally faster and easier than a traditional bank loan, and funds can be used for any
purpose — payroll, inventory, or for growing the business. In addition, Invoice Finance is
available to far more businesses than traditional bank loans or lines of credit.

Q: What is Select Invoice Finance?
A: Select Invoice Finance gives companies the ability to fund as few or as many invoices as they
wish — even just a single invoice. This lets suppliers utilize Invoice Finance only when needed,
with the possibility of seeking additional funds at a later time.

Q: What is Full Ledger Invoice Finance?
A: Full Ledger Invoice Finance refers to the practice of a funder who requires control of an
entire portfolio of invoice. While this is a comprehensive solution for suppliers, it requires the
supplier to make commitments to the funder including time commitment and monthly
minimum volumes.

Q: What is Open Ledger Invoice Finance?
A: Open Ledger Invoice Finance offers the advantages of Full Ledger Invoice Finance — including
the ability to fund an entire portfolio of invoices combine with flexibility of Single/Select Invoice
Finance. Open Ledger Invoice Finance carries far fewer restrictions — no minimum funding
requirements, and no time commitments. Open Ledger Finance was pioneered by IFG and is
available to companies with revenues from $10 million to $1 billion.

“Services provided by IFG allowed us to capitalize on significant growth opportunities over a short period of time; tripling our workforce and increasing our revenue 10 fold”

~Carol Craig / President / Craig Technologies

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