Supply Chain Finance: What's It All About?

Picture this. You run a business. It’s successful. You’re a supplier (subcontractor, etc.) to a large company (major retailer, major contractor, think big and corporate). You get an invitation to join their supply chain finance program. But what does that mean for you? And why is it being offered in the first place?

It’s possible this is the first time you’ve ever heard of supply chain finance, and if it is you wouldn’t be alone. It’s also referred to as supplier finance, or as an early payments program, and essentially, it’s a financing program by a large corporation that lets the businesses it deals with in it’s supply chain access quick, cost-effective financing.

To explain how this is beneficial, there are a few key terms to come to grips with:

Supply chain finance (SCF) program refers to the early payment program often developed by a third-party supplier (e.g. bank or fintech) and run by them on the buyer’s behalf.

Buyer refers to the large company that implements the SCF program.

Supplier refers to the businesses and business owners who are part of the buyer’s supply chain. They will be the ones actively using an SCF program.

Investor refers to the party that purchases the supplier’s invoice at the early payment date. The buyer will pay the investor on the invoice due date, absolving the supplier of any fiscal responsibility.

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Source: Supply Chain Finance: What’s It All About?