Your big customer offers early payment through supply chain finance. How it works, who pays the discount, and when to join, negotiate or fund another way.
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Supply Chain Finance · Small Suppliers · Payment Terms
Picture a sole trader who supplies a national contractor opening a letter: standard terms are moving out, and she can now get paid early through a finance platform for a small discount. Whether that is a useful option or a cost pushed onto her depends on the terms, her own finance and how the customer really pays.
Quick Answer
Supply chain finance lets a supplier have an approved invoice paid early by a finance provider the customer has arranged, at a discount the supplier usually bears, so it suits you when your terms are fair and you want the cash sooner, and not when it replaces fair terms. Join if your terms are unchanged and the discount beats your other finance; negotiate if the offer came with longer terms; and fund the gap through invoice finance or a line of credit if the program would clash with a facility you already have.
Also called: reverse factoring, supplier finance, early payment program. They describe the same arrangement from different sides: "reverse factoring" is the finance term, and "early payment program" is what the customer usually calls it.
How does supply chain finance work for a small supplier?
Supply chain finance works by letting a finance provider your customer has chosen pay your approved invoice before its due date, less a discount, and then collect the full amount from your customer when the invoice falls due. The customer sets the program up and invites its suppliers to join. You do not apply for a loan; you opt in to being paid early.
- You deliver and invoice on your agreed trade terms, exactly as you do now.
- The customer approves the invoice in its own system, which confirms it accepts the goods or services and intends to pay that amount.
- You choose early payment through the program platform, invoice by invoice or for every approved invoice, depending on how the program is set up.
- The funder pays you the invoice amount less a discount, typically within a few days of approval.
- The customer pays the funder the full invoice amount on the original due date.
Because the funder relies on the customer's promise to pay an approved invoice, it is mainly the customer's credit that gets assessed, not yours. That is why these programs are run by large businesses: the discount reflects a big company's credit standing, which can price below funding against a small supplier's own ledger. Once you take early payment, the invoice usually leaves your accounts receivable because it has been paid, which is a different thing from borrowing against it.
The same programs show up from the buyer side too. If you import as well as supply, the trade finance guide for importers covers how a buyer-led program sits beside the finance you use for stock.
Who pays for supply chain finance, and what does it cost you?
The supplier usually pays for supply chain finance, because the discount comes off your invoice while the customer keeps its payment terms at no direct cost to itself. Put plainly, it is early payment you pay for, and whether that is good value depends on what the alternative costs you.
The discount on one invoice tends to look small. To compare it fairly, turn it into a yearly cost: work out how many days early you are being paid, then scale the discount up to what it would be over a full year. Annualised, even a small discount can read very differently once it sits next to the yearly cost of other finance. Our factor rate calculator runs the same kind of arithmetic for invoice finance fees, and the factor rate glossary entry explains the terms.
Then line up three costs side by side: the annualised discount, the cost of simply waiting for payment on the original terms (overdraft interest, or paying your own suppliers late), and the cost of funding the same invoices through invoice finance you arrange yourself. The usual result: the program is cheap money when the terms were already fair, and expensive money when the terms were stretched to make room for it.
| Question | Supply chain finance | Invoice finance | Line of credit |
|---|---|---|---|
| Who sets it up? | Your customer, through a bank or finance platform it chooses | You, with a funder you choose | You, with a lender you choose |
| Whose credit is assessed? | Mainly the customer's | Your customers' and your business's ledger | Your business, its accounts and any security offered |
| Which invoices are covered? | Only approved invoices owed by that one customer | Typically your eligible invoices across many customers | None directly; a limit you draw and repay |
| Who bears the cost? | Usually you, as a discount on each invoice paid early | You, as fees and a discount or interest | You, as interest and fees on what you draw |
| Effect on an existing facility? | Can conflict if a funder already holds those invoices | Usually covers the ledger it funds exclusively | Usually sits alongside, subject to security terms |
| Can you leave? | Usually yes, since early payment is chosen invoice by invoice | Subject to notice periods and any minimum term | Subject to facility terms and any exit fees |
Every row is indicative and varies by provider and program. Read the program terms and your own facility documents before relying on any of it.
Why did regulators look at supply chain finance and longer payment terms?
Regulators looked at supply chain finance in 2020 because some large businesses lengthened their payment terms and then offered small suppliers early payment for a fee, which moved the cost of the longer terms onto the supplier.
The Australian Small Business and Family Enterprise Ombudsman's interim position paper on supply chain finance, published in February 2020, found the problem was not the product itself but how some large businesses used it: extending payment times, then selling early payment back to suppliers, who bear the discount. Its draft recommendations included that the program should be a real choice for suppliers, a 30-day payment standard, and a framework for reporting payment times.
Later that year, in November 2020, the ACCC welcomed a commitment by a large engineering contractor to return its small business suppliers to 30-day terms. The contractor had allegedly extended its terms to 65 days on new purchase orders and pointed suppliers needing earlier payment to a finance company. The ACCC said supply chain financing "is not unlawful and in some cases can be a good option for small businesses", and that it would keep monitoring how supply chain finance and longer payment terms are used in small business contracts (ACCC, media release, November 2020, read 28 October 2026).
Both sides of that matter hold today. The product is not the problem; the terms can be. For a supplier on fair terms, early payment priced on a big company's credit can be cheaper than other finance. The trouble starts when joining the program is the price of terms that were made longer first. These reviews are history now; the tool you use to check a customer today is the register in the next section.
How can you check how a big customer really pays?
You can check how a big customer really pays by looking it up on the Payment Times Reports Register, where large businesses publish the payment terms and payment times they give small business suppliers.
Under the Payment Times Reporting Scheme, at the time of writing (read 28 October 2026), reporting entities, which are mostly large businesses and some government enterprises, report every six months on how they pay small businesses, including their use of supply chain finance arrangements. The scheme started on 1 January 2021 and now runs under the Payment Times Reporting Rules 2024. Small businesses can search the register for free, so check the register before you sign anything that changes your terms.
- Standard payment terms. The terms the customer says it offers small suppliers, compared with what your own contract or the new letter says.
- Actual payment times. How long the customer reports it really takes to pay, which can run longer than its written terms.
- Supply chain finance use. Whether the customer runs or uses a program, which tells you the offer you received is part of a wider policy.
- The trend across reports. A report every six months shows whether terms are shortening or stretching over time.
The register tells you how the customer pays on average, not whether it can keep paying. Pair it with a company credit check on the customer, which covers how giving trade credit changes your own cash flow.
What if you already have invoice finance or debtor finance?
If you already have invoice finance or debtor finance, talk to your funder before you join a customer's program, because your funder may already own that invoice or hold security over it.
A whole-ledger debtor finance facility usually takes an assignment of, or security over, every invoice you raise, including the ones owed by the customer now offering early payment. Many facilities are also backed by a general security agreement registered on the PPSR, which can extend to your receivables. Offering those same invoices into a customer's program can mean two funders claiming one invoice, a breach of your facility terms, and an awkward conversation with both. Your funder may already own that invoice, whatever the program platform shows.
- Ask your funder first. Request written consent, or a carve-out that removes that customer's invoices from your facility.
- Check what is registered. A PPSR search against your own business shows which security interests sit over your assets and receivables.
- Read the program's assignment terms. The program will usually require that the invoice is free of other claims; the invoice finance guide explains how assignment works across these products.
- Recheck your availability. Removing a large customer from your ledger can shrink what your facility will advance on the rest.
When a supplier with a facility comes to us, the first question is who already holds the receivables, before anyone compares discounts. If you are weighing whether two funders can share one ledger at all, the invoice and debtor finance providers guide covers switching and combining providers.
Should you join, negotiate shorter terms, or fund the gap another way?
Join the program if your terms are fair and the annualised discount is cheaper than your other options; negotiate if the offer arrived alongside longer terms; and fund the gap another way if the program would clash with your own finance or you need cash across many customers. In short: join the program, negotiate the terms, or step around both.
Join the program when
- Your payment terms have not changed
- The annualised discount beats your other finance
- No funder holds security over these invoices
- You can choose invoice by invoice
Negotiate the terms when
- The offer came with longer terms
- The register shows slow actual payment times
- Joining looks like a condition of keeping the work
- The discount wipes out your margin on the job
Select your scenario
Joining can be a sensible option
If your terms are the same as before, early payment is extra choice. Compare the annualised discount with your overdraft or invoice finance cost and take it only on the invoices where the cash is worth more than the discount.
Join the programNegotiate before you opt in
If the offer arrived with longer terms, the discount is the price of the extra wait. Check the customer on the Payment Times Reports Register, ask to keep your current terms, and ask your solicitor whether the change is fair under your contract.
Negotiate the termsClear it with your funder first
If you have invoice finance or debtor finance, your funder may already own these invoices. Ask for written consent or a carve-out of this customer before you join, and check how removing the customer changes what your facility will advance.
Fund another wayIf you decide not to join, or the program only covers one customer, there are other ways to fund the gap. Single invoice finance funds chosen invoices from one slow payer without tying up your whole ledger, and its guide sets out the alternatives when one customer is the problem. A business line of credit covers lumpy gaps without touching invoices at all. And invoice finance across your whole ledger suits suppliers with many business customers. If you are torn between an invoice facility and a loan, see invoice finance versus a working capital loan. To see what your business could qualify for before you answer the customer, check eligibility, or browse the other cash flow options on the Business Owners Hub.
Supply chain finance pays a small supplier's approved invoices early, priced on the big customer's credit, with the discount usually coming out of the supplier's pocket. It is good value when your terms are fair and the annualised discount beats your other finance, and poor value when it arrives as the fix for terms that were just made longer. Check the customer on the Payment Times Reports Register, clear it with any funder that already holds your invoices, and compare it with invoice finance or a line of credit before you sign.
Key takeaway: before you opt in, check the register, check your own facility, and annualise the discount.Frequently Asked Questions
Supplier invoice financing is another name for supply chain finance, where a funder arranged by your customer pays your approved invoices early for a discount and then collects the full amount from the customer at the due date. It differs from finance you arrange yourself, which typically covers your own accounts receivable across many customers and is a facility you control.
Reverse factoring is the same arrangement as supply chain finance, named from the finance side because the buyer, not the seller, brings in the funder. In ordinary factoring the supplier chooses a funder and sells its own invoices to it. The invoice finance guide sets out how the supplier-led forms differ.
You do not usually have to join a customer's supply chain finance program, because early payment is offered as an option and your invoices still fall due on your agreed terms. The 2020 small business review argued it should be a real choice. If joining came packaged with longer terms, read the change against your contract and your trade terms, and ask your solicitor whether it is fair.
Using supply chain finance alongside debtor finance needs your debtor finance funder's consent, because that funder usually holds an assignment of, or security over, the same invoices. Selling an invoice to a program funder that your own funder already holds can put you in breach of your facility. Ask your funder for a carve-out of that customer's invoices first, and read how debtor finance covers your ledger.
You can see how fast a big company pays its small business suppliers on the Payment Times Reports Register, where large businesses report their payment terms and times every six months at the time of writing. The reports also show whether the business uses supply chain finance arrangements. Pair the register with a credit check on the customer before you extend terms.
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