Supply-chain finance (reverse factoring)
A large customer sets up a scheme so its suppliers can be paid early by a finance company, at a cost based on the customer's credit rating rather than the supplier's.
- Secured on invoices
How it works
Supply-chain finance is also called reverse factoring or supplier finance. It is set up by the buyer, not the supplier.
- You supply goods or services and send an invoice with the agreed payment terms.
- The buyer approves the invoice and uploads it to a supply-chain finance platform.
- You ask, through the platform, to be paid early.
- The finance company pays you the invoice value minus a fee. The fee is based on the buyer's credit rating.
- The buyer pays the finance company when the invoice falls due.
For a buyer, the scheme can mean longer payment terms. For a supplier, it means getting paid early, usually more cheaply than with other ways of borrowing.
Upsides and downsides
Upsides
- Suppliers: get paid early, usually at a lower rate than other funding because the cost is based on the buyer's credit
- Buyers: keep cash in the business for longer while suppliers still get paid promptly
- Can strengthen relationships between buyers and suppliers
Downsides
- Suppliers: you cannot use it unless your customer offers it
- Buyers: setting up the platform and integrating it with your systems can be costly
- Invoices above the agreed limit are not covered
Risks
- The buyer can change or end the scheme, which removes the early payment option
- Suppliers may come to depend on early payment and struggle if it stops
What it costs
- How it is priced
- A fee deducted from each invoice paid early, based on the buyer's credit rating
- Costs that are easy to miss
- For buyers: the cost and complexity of linking the platform to your IT systems
- For suppliers: each early payment is less than the full invoice value
Limited to invoices the buyer has approved, within the limits of the buyer's scheme.
Does it fit?
Could fit when
- You supply a large business or public body that runs a supply-chain finance scheme
- You are an established buyer with many suppliers and want to improve your working capital
Unlikely to fit when
- Your customers do not offer a scheme
- You are a new business without a credit history (as a buyer)
Who can use it
- Business types: Sole trader, Partnership, Private limited company, LLP, Public limited company, Community interest company, Co-operative or community benefit society, Charity
- Needs sales (revenue)
- Only for businesses that sell to other businesses
- As a supplier: only available if your customer runs a supply-chain finance scheme and approves your invoices
- As a buyer: generally only available to businesses that have traded for a few years and have a good credit history
- There may be a minimum spend on the invoices covered
Am I ready?
What a provider is likely to ask for. Tick what you have. Your ticks stay in this browser and nothing is stored. Checklist for all supplier and buyer-led finance
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- Your customer runs a scheme
- Invoices approved promptly
- Onboarding documents
Regulation and protections
Commercial finance (finance for businesses rather than consumers) is not generally subject to statutory conduct regulation in the UK, so your protections depend on the contract and the provider's own complaints process.
Types of provider: Banks; Non-bank finance companies; Supply-chain finance platforms.
Also consider
Sources
- British Business Bank: What is supply chain finance? · checked 7 October 2026
- UK Finance: The Standards Framework for Invoice Finance and Asset-Based Lending (January 2025) · checked 7 October 2026