Payables Finance (Supply Chain Finance)

Payables finance (also called supply chain finance or reverse factoring) is a working capital tool that works from the buyer's perspective rather than the supplier's. A large company (the buyer) agrees with a finance provider that its approved invoices from suppliers can be paid early by the lender. Suppliers receive payment quickly; the buyer repays the lender on the original invoice due date, or on extended terms.

The advantage is that early payment is funded at the buyer's credit rating rather than the supplier's. Since large companies typically have lower borrowing costs than their smaller suppliers, payables finance can provide cheaper early payment than the supplier could obtain independently. It strengthens supply chains by reducing supplier financial stress.

For smaller businesses that are suppliers to large corporations, enquiring whether the buyer operates a supply chain finance programme can provide access to early payment at competitive rates. For businesses seeking to extend their payment terms while supporting their suppliers, a payables finance programme can achieve both objectives.

Related terms