How supply chain finance works for UK businesses

Supply chain finance - also known as reverse factoring or approved payables finance - is structured around the buyer's approved invoices. When a supplier issues an invoice to the buyer, the buyer approves it in the supply chain finance platform. The supplier then has the option to request early payment from the finance provider at a small discount, rather than waiting for the standard 30, 60, or 90 day payment term.

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The three parties in a supply chain finance programme

• The buyer - typically a larger business with multiple suppliers and the ability to negotiate extended payment terms. The buyer establishes the programme and approves supplier invoices
• The supplier - typically a smaller business that benefits from the option to receive early payment on approved invoices, improving cash flow without taking on additional debt
• The finance provider - a specialist lender that pays the supplier early at a small discount and collects the full invoice amount from the buyer on the extended payment date

Supply chain finance versus invoice finance - key differences

Invoice finance is initiated by the supplier - the supplier borrows against outstanding invoices with or without the buyer's involvement. Supply chain finance is initiated by the buyer - the buyer's creditworthiness underpins the programe and the cost of financing is driven by the buyer's credit rating rather than the supplier's. This is why supply chain finance often delivers a lower financing cost for suppliers than invoice finance alone. Money Pilot also compares trade finance and broader business finance at zero broker fees.

Supply chain finance - four key structures explained

Supply chain finance is not a single product - it encompasses several distinct structures. Understanding which is right for your business depends on your role in the supply chain, your turnover, and your working capital objectives.

The credit arbitrage - why supply chain finance works

SCF's engine is a credit differential: a strong buyer's rating is used to fund its smaller suppliers at rates those suppliers could never reach alone. Structured properly, the buyer extends its payment terms, suppliers get paid in days, and nobody takes on conventional debt.

Two doors into SCF - buyer-led and supplier-side

Go deeper

Adjacent tools: how invoice finance improves cash flow UK and import finance for UK businesses.