What is Supply Chain Finance?

Supply Chain Finance (also known as SCF, payables, reverse factoring and supplier finance), is a cash flow solution which helps businesses free up working capital trapped in global supply chains. Supply Chain Finance has recently been defined as a much broader category of trade financing, encompassing all the financing opportunities across a supply chain. Notwithstanding, the product is still very much seen from a narrower perspective, where its key feature is that it is buyer/debtor driven. In such a case, a buyer approaches its financial provider for the establishment of a receivables discounting line for its suppliers to use and discount the invoices they issued to that buyer.

It is a solution designed to benefit both suppliers and buyers; suppliers get paid early and buyers can extend their payment terms. This solution allows businesses which import goods to unlock working capital as well as reduce the risk associated with buying goods in bulk and/or transporting them globally. SCF is generally defined as ‘an arrangement whereby a buyer agrees to approve his suppliers’ invoices for financing by a bank or other financier’.