Definition
A buyer-led program that lets suppliers get paid early at the buyer's credit rate.
Why it matters
Also called reverse factoring.
Where it shows up in a deal
A supply chain finance program is run by a large buyer and administered on a platform the buyer selects. Once the buyer approves your invoice for payment, you can take that approved payable early at a rate based on the buyer's credit rather than yours. You see it as an invitation to onboard, not as something you can arrange yourself.
What it affects
- Pricing follows the buyer's credit, so it is usually cheaper than financing the same invoice yourself.
- Only invoices the buyer has approved are eligible, so disputes and deductions are resolved first.
- The buyer controls participation and can change or withdraw the program.
- It covers only buyers that run a program, leaving the rest of your ledger to be financed another way.
A worked example
A supplier owed $500,000 on net 90 takes payment on day 10 at an annualized 6%: the discount is $500,000 x 6% x 80/365 = $6,575. Factoring the same invoice at 1.5% per 30 days for those 80 days would cost about $20,000.
The common mistake
Related terms
- Invoice FactoringSelling unpaid invoices to a factor for an immediate advance.
- Early Payment DiscountA discount offered to customers who pay before the due date, such as 2/10 net 30.
- Net TermsThe number of days a customer has to pay, such as net 30 or net 60.
- Accounts PayableMoney a business owes its suppliers and vendors.
Questions about how supply chain finance affects your facility?
Call (929) 658-8087 or request a written quote — no obligation, no credit impact.
