The Procurement Glossary » Supply Chain Finance (SCF)

Supply Chain Finance (SCF)

Finance & Payments

Also known as: SCF, Reverse Factoring

Definition

Financing arrangements, often bank-backed, that let suppliers get paid early while the buyer pays on normal terms.

Explanation

In SCF (reverse factoring), a financier pays the supplier early at a small discount based on the buyer's strong credit, and the buyer repays the financier at the due date. It improves supplier liquidity without hurting the buyer's working capital.

Example

Through SCF, a small supplier is paid in 5 days at the buyer's low financing rate, while the buyer still pays at 60 days.

Related terms

• Dynamic Discounting — A flexible early-payment scheme where the discount varies with how early the buyer pays, agreed on a sliding scale.
• Invoice Financing (Factoring) — A supplier's use of its unpaid invoices as collateral to obtain immediate cash from a financier.
• Working Capital — The money tied up in day-to-day operations — broadly current assets (inventory, receivables) minus current liabilities (payables).
• Payment Terms — The agreed conditions for when and how a buyer pays a supplier, such as 'net 30 days' from invoice date.

Frequently Asked Questions

What is Supply Chain Finance (SCF)?

Financing arrangements, often bank-backed, that let suppliers get paid early while the buyer pays on normal terms. In SCF (reverse factoring), a financier pays the supplier early at a small discount based on the buyer's strong credit, and the buyer repays the financier at the due date. It improves supplier liquidity without hurting the buyer's working capital.

Can you give an example of Supply Chain Finance (SCF)?

Through SCF, a small supplier is paid in 5 days at the buyer's low financing rate, while the buyer still pays at 60 days.

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