What Is Supply Chain Finance?
Supply Chain Finance, also known as reverse factoring, focusses on maximising a healthy cash flow for suppliers when dealing with larger customers, often with extended payment terms.
Despite the name, the actual product used is Invoice Finance. This can be either a full ledger facility with a 1-2 year agreement or a Selective Invoice Finance product where the invoice to be funded can be chosen by the supplier and used as and when required.
The relationship between funder and lender is often instigated by the buyer who wants to ensure that their suppliers are receiving the finance needed to manage their business whilst awaiting payment of their invoice.
The funder takes comfort in the strength of the buyer’s business, and is able to fund the supplier’s invoices with confidence.  The buyer will often provide a payment guarantee or Promissory Note to the funder.
Supply Chain Finance has increased in popularity over recent years as buyers have sought to extend their payment terms without damaging the financial health of their Suppliers. It has created more of a sense of partnership between the parties giving buyers confidence in the sustainability of their suppliers business models and at the same time enabling suppliers to get on with meeting production deadlines.