Many growing businesses sit between pressure from suppliers and pressure from customers. Suppliers want faster payment. Large buyers often negotiate longer terms. Internal teams are left trying to keep everyone satisfied while cash sits stuck between payables and receivables.
Supply chain finance (SCF) offers a different way to handle this tension. Instead of asking small and mid-sized suppliers to carry the buyer’s working capital burden, SCF brings a funding partner into the picture. Once invoices are approved by a strong buyer, those receivables can be paid early to suppliers, while the buyer maintains the payment terms it needs.
This guide explains what supply chain finance is, how the structures work in practice, the benefits for both buyers and suppliers and how Financely Group helps companies design and access SCF programs through banks and private credit providers.
Supply chain finance is a working capital solution where a third-party funder pays approved supplier invoices early, based on the buyer’s credit quality. The supplier receives money soon after the invoice is approved, usually at a discount or interest charge. The buyer then pays the funder at a later agreed date.
Key features include:
SCF is most common where a large buyer has many suppliers, often across borders, and wants to support their cash flow while improving its own payables position.
While structures vary by bank, funder and platform, most SCF programs follow a similar pattern.
The supplier delivers goods or services and issues an invoice to the buyer under normal commercial terms. Once the buyer verifies that the goods or services meet contract standards, the invoice is approved in the buyer’s system and sent to the SCF platform or funding partner.
After approval, the supplier may choose to receive early payment from the bank or funding partner participating in the SCF program. The supplier is paid the invoice amount minus a discount or interest charge that reflects the time until the buyer’s due date and the buyer’s credit risk.
Because the funding decision is based on the buyer’s credit standing rather than the supplier’s, small and mid-sized suppliers often access better pricing than they would obtain on their own.
On the original due date (or an extended date agreed under the program), the buyer pays the lender the full invoice amount. From the buyer’s perspective, this is similar to paying any other approved invoice, but the funds now go to the SCF funder instead of the supplier.
The supplier receives cash earlier and can plan production, payroll and purchases with more confidence. The buyer can manage its payables schedule, often extending terms without pushing smaller suppliers into distress. The funding partner earns a return for providing early payment against approved invoices.
SCF programs help suppliers access faster payment without being forced into expensive short-term loans. This reduces tension in negotiations and supports long-term relationships. Suppliers see that the buyer is prepared to share the benefit of its stronger credit profile rather than simply pushing for longer terms.
Buyers can often agree extended terms with suppliers while still keeping suppliers whole through early payment options. This frees internal cash for other uses such as growth, debt reduction or capital projects without shrinking the supplier base or forcing aggressive discounting.
Suppliers shorten days sales outstanding (DSO) when they accept early payment. Buyers manage days payables outstanding (DPO) within a planned range. Together, this leads to more predictable working capital across the supply chain, fewer urgent funding requests and clearer forecasting.
Many suppliers pay higher rates on overdrafts or unsecured loans than large buyers pay on their own credit lines. SCF allows suppliers to access funding priced off the buyer’s risk rather than their own. That difference can materially reduce financing costs in markets where small businesses struggle to access bank lending.
Funders in SCF programs focus on invoices that have been approved by solid buyers. This reduces default risk compared to funding anonymous receivables. Meanwhile, buyers lower the risk of disruption by supporting the financial health of critical suppliers, especially in sectors with long lead times or concentrated vendor bases.
SCF is not limited to any single sector. It is most helpful when there is concentration in buyers or suppliers, long payment terms or cross-border trade.
Supply chain finance is a family of related tools rather than a single product. The right structure depends on contract terms, bargaining power and the buyer’s balance sheet.
In reverse factoring, the buyer sponsors the program and invites suppliers to join. Once invoices are approved, the SCF funder offers early payment to suppliers based on the buyer’s credit profile. The buyer then pays the funder at a later date. This is the most common SCF structure for larger corporates.
Some buyers run early payment schemes where they pay suppliers ahead of the due date in exchange for a discount on the invoice amount. These are often called early payment discount programs or dynamic discounting, especially when the discount varies depending on how many days early the payment is made.
These programs can be funded either from the buyer’s own cash or through linked credit lines. They are attractive when buyers hold surplus cash and want to earn a better return by supporting their own supply chain.
Some SCF programs allow buyers to arrange funding for specific categories of payables, such as key raw materials or strategic suppliers. The bank or funder pays those invoices early and the buyer repays under agreed terms. This is similar to reverse factoring but can be tailored to particular supplier tiers or regions.
In more advanced structures, funders extend working capital against inventory in transit or stored in controlled warehouses, linked to the same buyer-supplier relationships. This helps suppliers and traders hold stock without tying up all their own capital, while buyers gain security of supply.
| SCF Tool | Main Beneficiary | Primary Use |
|---|---|---|
| Reverse Factoring | Suppliers | Early payment of approved invoices using the buyer’s credit profile. |
| Early Payment Discount Programs | Buyer and suppliers | Buyer pays early, supplier offers a discount, both improve their cash positions. |
| Payables Finance | Buyer | Extends payment terms on key payables while keeping suppliers paid on time. |
| Inventory Financing | Suppliers and traders | Funds stock in the supply chain so goods are available without tying up all own capital. |
Launching a supply chain finance program is not only about choosing a bank or platform. It requires a clear view of supplier segments, payment terms, legal contracts and internal systems. Many teams know they need to ease pressure on suppliers and on their own working capital, but struggle to connect all of these moving parts into a bankable structure.
Financely Group works with buyers and sponsors that want to build or expand SCF programs across domestic and cross-border supply chains. Through regulated partners, we help:
The objective is to build SCF arrangements that suppliers actually use, that are priced fairly and that reflect the buyer’s real credit profile and operational systems.
Supply chain finance can turn approved payables into a shared working capital tool for buyers and suppliers instead of a source of conflict. When SCF is built around real transaction flows and credible funders, it becomes a practical way to support growth, manage risk and keep key suppliers stable through volatility.
If your business is facing repeated discussions about payment terms, supplier stress or working capital pressure, a structured SCF program may be part of the answer. Financely Group helps buyers and sponsors assess their options and connect with banks and private credit funds that are active in supply chain finance globally.
Share your supplier profile, spend data and working capital objectives with our team to explore supply chain finance structures funded through our regulated partner network.
Discuss Supply Chain FinanceDisclaimer: This page is for general information only and does not constitute legal, tax, accounting or investment advice. Financely Group acts as advisor and arranger through regulated partners and is not a bank or direct lender. Any supply chain finance, payables finance, receivables program or capital raising process is subject to underwriting, KYC, AML, sanctions screening, legal review, documentation, perfected security and approvals by relevant stakeholders. No public offer or solicitation is made on this page.
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