What is supply chain finance?
Supply chain finance, also called reverse factoring, is a programme in which a bank or other funder pays a buyer's suppliers early for approved invoices, at a discount based on the buyer's credit rating, and the buyer pays the funder in full on the due date. Suppliers get cheaper early payment; buyers keep their payment terms.
Also calledSCFreverse factoringsupplier financepayables finance
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- Funded by
- Bank or other funder
- Priced on
- Buyer's credit rating
- Disclosure
- Required under US GAAP and IFRS
How supply chain finance works
The buyer sets up a programme with a funder and invites suppliers. When the buyer approves an invoice, it confirms it will pay on the due date; the supplier can then sell that receivable to the funder and be paid immediately, less a fee that reflects the buyer's credit rather than its own. On the due date the buyer pays the funder. Because the buyer may also extend its terms, supply chain finance can increase days payable outstanding, which is why accounting standard setters have required disclosure: under US GAAP from 2023 and IFRS from 2024, buyers disclose the key terms, amounts outstanding and changes in supplier finance programmes. Rating agencies and auditors also look at whether such payables should be treated as debt. Coupa offers supply chain finance alongside dynamic discounting in its payments platform.
Common questions
What is the difference between supply chain finance and factoring?+
In factoring the supplier sells its invoices and the cost reflects the supplier's credit. In supply chain finance the buyer sets up the programme and confirms invoices, so the cost reflects the buyer's stronger credit.
Do companies have to disclose supply chain finance?+
Yes. US GAAP (ASU 2022-04) requires disclosure from 2023, and IFRS amendments to IAS 7 and IFRS 7 from 2024, covering programme terms, amounts outstanding and changes.
Is supply chain finance debt?+
Usually it stays in trade payables, but if terms are extended well beyond normal or the funder's role changes the nature of the liability, it may need to be classified as borrowing.
Supply chain finance platforms
Part of Accountio’s accounting technology coverage · Glossary
