Supplier financing is also known as supply chain finance or reverse factoring.

In a normal business transaction, after the supplier supplies goods to the buyer, generally it takes anywhere between 30 to 90 days before the buyer makes the payment.  Sometimes the period may extend to 180 days particularly in case of textile industry.  As a result, the supplier’s funds are stuck in the supply chain cycle for that period.

Generally, when the suppliers supply goods to large or global buyers with good credibility, and the buyer accepts/approves the invoice, the payment of dues is guaranteed, with little chance of default.

Supplier financing aims at reducing the period for which the funds are locked in the system, without requiring the buyer to pay early or affecting the supplier’s working capital.

Once the invoice for goods supplied is approved by the buyer, the supplier then presents the invoice to the supplier financer, who makes full payment for the said invoice as early as the next business day and collects the amount from the buyer, when the payment becomes due.  And all this for a nominal interest, which is generally borne by the supplier.The amount charged by the lender mainly depends on the credibility and market standing of the buyer.

The major benefit of supplier finance is that the working capital of both the supplier and the buyer remains unaffected by the longer payment terms on invoices.

Contact us to know more about supplier financing and our role in setting up the same for you.