Supply chain finance: how it works for suppliers and buyers

Supply chain finance is a facility, provided by a commercial lender, that allows a buyer’s suppliers to be paid early by discounting invoices the buyer has approved. UK Export Finance (UKEF) describes it in exactly those terms: the facility lets suppliers draw on it to discount approved invoices, and the buyer then pays the bank the face value of each invoice at maturity.

Put simply, the funder pays the supplier now and collects from the buyer later. The supplier gets cash sooner than the invoice terms would allow. The buyer keeps the payment date it agreed. The funder charges for the early payment, usually shown as a discount on the invoice, so check who bears that cost under the programme you are offered.

You may also see it called supplier finance, reverse factoring or approved payables finance. The names are used loosely, so ask any provider to explain in plain terms who is paid, when and at what cost.

A typical programme runs in five steps, although each funder sets its own process.

1. The buyer sets up a facility with a funder and invites its suppliers to join.
2. The supplier delivers goods or services and issues an invoice.
3. The buyer approves the invoice, confirming it will be paid on the due date.
4. The supplier chooses whether to take early payment, and the funder pays it less a discount.
5. On the due date the buyer pays the funder the full invoice amount.

The approval in step three is what makes the structure work. The funder is relying on the buyer to pay the approved invoice, so the buyer’s reliability matters to the whole arrangement. A supplier can usually choose which approved invoices to draw on, although that depends on the programme’s terms.

Suppliers get access to cash earlier, and buyers get stability in their supply base without paying sooner. UKEF’s guidance on its own supply chain finance guarantee lists benefits for exporters such as longer payment terms, ongoing financial support to suppliers and extra financing capacity, and for suppliers faster access to cash and improved liquidity.

Supply chain finance is organised around one buyer and the invoices it has approved, while invoice finance is arranged by the seller against its own sales ledger. The money may be advanced against an invoice in both cases, but the starting point is different.

The British Business Bank describes factoring as the provider advancing a proportion of invoice value and also managing your sales ledger and collecting payment, so customers are likely to know. It describes invoice discounting as a finance-only product that can be undisclosed. Our guide to invoice finance covers both in detail.

In one specific way, yes: UKEF’s Supply Chain Discount Guarantee is a guarantee that helps UK exporters access supply chain finance facilities from a commercial lender. UKEF says it can provide partial guarantees covering up to 80% of the risk of the exporter failing to repay the financing bank.

Eligibility is specific. The exporter must have had at least 20% of its annual turnover from UK export sales in any one of the last three financial years, or at least 5% in each of the last three. It must also be carrying on business in the UK, with both premises and employees here. The guarantee is available on a case-by-case basis, and the fee is set case by case.

Supply chain finance does not change the legal rules on late payment, and anything that lengthens payment terms is exactly what those rules and the reporting regime look at. For business-to-business sales, the interest you can charge on a late payment is statutory interest of 8% plus the Bank of England base rate, unless your contract sets a different rate. You can also claim fixed compensation of £40, £70 or £100, depending on the size of the debt.

• If a payment date is agreed it must usually be within 60 days for business transactions, or 30 days for public authorities. With no agreed date, payment is late 30 days after the invoice or delivery, whichever is later.
• A large business is a company or LLP meeting at least two of £54 million turnover, £27 million balance sheet and 250 employees. Large businesses must publish payment practice reports at least twice a year, and you can search the reports on GOV.UK.
• Public sector buyers must include 30-day payment terms in public sector contracts and pass them down their supply chain.

A change is proposed but not yet law. The Commercial Payments Bill was introduced in the House of Lords on 19 May 2026 and, as of October 2026, is before the House of Commons. The government says it would include a 60-day cap on payment terms for large firms paying smaller suppliers. Check the Bill’s page on the UK Parliament website for its current stage. Our guides on payment terms and late payment interest go through the rules in more detail.

The main risk for a supplier is dependence: a programme is run by the buyer and its funder, and the buyer can change or end it. If it does, you return to the invoice terms in your contract, which may be longer than the early payment you had planned around.

• Dependence on one buyer’s programme and one funder.
• A discount that reduces your margin on every invoice you draw early.
• Programme terms, such as approval rules and limits, that change over time.
• For buyers, reliance on the programme to manage payment terms with suppliers, and the reporting that comes with large-business payment practices.

The government commissioned a review in 2021 into the development and use of supply chain finance in government, related to Greensill Capital, so the arrangements are not without risk. Read the programme terms and keep a plan for the cash flow if early payment stops. Our guide to working capital explains why timing gaps matter.

If your customers do not offer supply chain finance, you can still fund the gap yourself with products arranged around your own business. Most small suppliers will find that is the realistic route, because programmes are set up by buyers and funders rather than by individual suppliers.

• Finance against your own invoices: see invoice finance.
• A facility you draw on and repay as needed: see revolving credit facilities.
• A one-off need with a clear end: see working capital loans.

Each has its own cost, security and criteria, and all of them are subject to status.

Capzy is a credit broker, not a lender, and is paid by the lender. Supply chain finance programmes are set up by buyers with their own funders, so we do not arrange them. If your goal is to be paid sooner on your invoices, we can introduce you to lenders that offer invoice finance and related products.

You can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and any offer is subject to status and lender criteria. Capzy does not give accounting or legal advice, so ask your accountant how any arrangement would be treated in your accounts.