Side by side
| Criterion | Supply chain finance | Factoring |
|---|
| Who arranges it | The buyer, on behalf of its suppliers | The seller, for its own invoices |
| Pricing basis | Based on the buyer's credit rating | Based on the seller's credit rating |
| Who it benefits most | Suppliers to large, well-rated buyers | Businesses of any size selling to varied customers |
| Collections | Buyer pays the funder directly at maturity | Funder collects from the seller's customers |
| Typical cost | Often lower, reflecting buyer's stronger credit | Reflects the seller's own credit profile |
| Control | Buyer decides which invoices are eligible | Seller decides which invoices to fund |
Two different starting points
Supply chain finance starts with a large buyer wanting to support its supplier base, or extend its own payment terms, without damaging suppliers' cash flow. Because pricing is based on the buyer's credit rating rather than the supplier's, smaller suppliers can often access cheaper funding than they could arrange independently.
Factoring starts with the seller and is entirely within its control, funding whichever invoices it chooses to put forward, regardless of whether the buyer participates in any scheme.
Who tends to use each
Supply chain finance is most common where a large buyer, often in retail, manufacturing or construction, runs a programme that suppliers can opt into. It suits suppliers with concentrated sales to a small number of large customers.
Factoring is more universal and does not depend on any customer's participation, making it suitable for businesses with a broader, more varied customer base or those selling to buyers who do not offer such a scheme.
Practical considerations
A supplier can potentially use both, taking supply chain finance where their largest customer offers it and factoring for the rest of their ledger, though most funders will want visibility of the full picture to avoid double funding the same invoices.
The short answer
Use supply chain finance where your key customer offers a programme and you want cheaper, buyer-rated pricing; use factoring where you need control over your whole ledger regardless of customer participation.
Questions
Can a small supplier access supply chain finance?
Yes, provided the buyer runs a programme and has approved that supplier's invoices, smaller suppliers are often the biggest beneficiaries.
Is supply chain finance the same as factoring?
No, the mechanics can look similar but the arrangement is initiated by the buyer and priced on the buyer's credit, not the supplier's.
Can both be used on the same invoice?
No, an invoice can generally only be funded once, so businesses using both need to keep clear records of which facility covers which invoices.
Not sure which route fits? Describe the requirement once and we will structure it and approach the providers whose criteria match. No upfront fees — charges are due only once funding is in place.
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