A: Supply Chain Finance (sometimes 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 an approved 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 the seamless electronic integration between the buyer, supplier, and funder to provide invoices early the 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 an approved 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 the invoice amount by the buyer on the original invoice payment date.
Q: What is an Approved Invoice?
A: An Approved 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 the 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.