A guide to supply chain finance
Supply chain finance is often confused with receivables, trade, or invoice finance. However, while these types of funding are all designed to help businesses manage cash flow, they have many essential differences.
Benefits of supply chain finance
Supply chain finance is mutually beneficial for both buyers and suppliers because it helps both parties stabilise their cash flow.
Paid within a few days
Suppliers get similar benefits to invoice financing— they get paid within a few days rather than waiting for extended payment terms.
Lower cost
The cost can be lower because supply chain funding is based on the buyer's credit rating.
Extended payment terms
Buyers can extend their payment terms, i.e. delay paying suppliers for longer than average, without directly putting pressure on their suppliers.
Working capital
It's the lender whose working capital is affected — leaving both the buyer's and supplier's working capital free to use for other business purposes.
Collaborative process
Supply chain finance is a collaborative process — the lender helps both the buyer and the supplier, and all three parties have an arrangement together. That's why supply chain finance is not the same as invoice finance, even if it might seem similar from the supplier's point of view.
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A breakdown of supply chain funding
Invoice issued
The supplier issues an invoice to the buyer.
Buyer confirms
The buyer confirms that the invoice has been approved for payment to the lender.
Supplier gets value
The supplier gets the value straight away (minus a small fee).
Buyer pays the lender
When payment is due, the buyer pays the lender.
Stabilised cash flow
In this way, the supplier's cash flow is stabilised because they get paid within a few days, rather than waiting for the expected 'payment due date (which could be as long as 120 days).
Buyer benefits
Meanwhile, the buyer simultaneously benefits because they have effectively extended their payment terms without negatively impacting their suppliers. After all, if the lender takes the payment delay, the supplier gets paid within a few days, and the buyer's working capital is untouched until their extended payment terms are over.
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Calculations are indicative only and intended as a guide only. The figures calculated are not a statement of the actual repayments that will be charged on any actual loan and do not constitute a loan offer.
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Financial product information
Representative example*
• 7.63% APR Representative based on a loan of £50,000 repayable over 24 months.
• Monthly repayment of £2,252.94. The total amount payable is £54,070.56
*Some lenders may apply fees during the application process, please note that these are set and provided by these entities.
Annual Percentage Rates
Rates from 2.75% APR
Repayment period
1 month to 30 years terms
What is supply chain finance?
Cash advance
Supply chain finance (or 'supplier finance') is a type of cash advance. Similar to invoice finance, it's based on the credit rating of companies in the supply chain.
Higher credit scores
It's a way for smaller businesses to benefit from the higher credit scores of their buyers and for buyers to lengthen their payment terms.
How does supply chain finance work?
Honour invoices
Large multinational companies are highly likely to honour invoices from suppliers.
Value advanced
That means the suppliers that work with them can get 100% of the value advanced from a lender, minus a small fee, once the buyer has approved the invoice for payment — because, at this stage, the risk of non-payment is low.
Supply chain finance vs trade finance
Trade finance
Smaller buyers who receive goods from suppliers can fund these transactions using trade finance, as long as they are financially strong and work with creditworthy suppliers.
Letters of credit
This is typically done using Letters of Credit and/or cash upfront from large lenders that guarantee the payment to your supplier.
Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.
It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.
Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.
