All funding products

Supplier finance.

Supplier finance — also called reverse factoring or payables finance — lets a buyer's suppliers get paid early by a third party against approved invoices, while the buyer settles on standard terms with that third party. It's a tool for large buyers to support their supply chain without changing their own payment terms. For suppliers, it's a way to convert long payment terms into near-immediate cash at the cost of a small discount.

The basics

What is supplier finance?

A buyer — usually a large, well-rated corporate — sets up a programme with a bank or fintech. Approved suppliers can log in and "sell" approved invoices to the financier at a small discount, getting paid the same day. The financier collects the full invoice value from the buyer on its original due date.

Crucially, the cost of finance is priced against the buyer's credit risk, not the supplier's. That's why supplier finance is so cheap for SMEs supplying blue-chip names — they effectively borrow at almost the buyer's rate.

Distinct from but often confused with:

• Dynamic discounting — the buyer pays its own cash early in exchange for a discount, no third-party financier involved.
• Confirmed invoice finance — supplier-led, where the supplier's lender confirms invoices with the buyer; structurally closer to invoice discounting.
• Trade finance — typically funds the buyer's purchase, often for cross-border goods, with letters of credit or import loans.

Fit

When it works well.

Supplier finance is the cheapest working capital available to many SMEs — but only if the right conditions are present:

• You supply a large, creditworthy buyer that has a programme with a recognised platform (Taulia, Demica, PrimeRevenue, Greensill's successors, bank-led programmes from HSBC, Citi, NatWest).
• The buyer's payment terms are 60+ days and slowing your cash conversion cycle.
• You don't need to fund pre-approval — these programmes only finance invoices the buyer has already signed off.
• You want to selectively fund — most platforms allow invoice-by-invoice early payment, not whole-ledger drawdown.

The classic users are mid-market manufacturers, packaging suppliers, services firms, and consultancies feeding into large UK retailers, FMCG groups, NHS trusts, and infrastructure projects.

The honest part

When it's a bad idea.

Supplier finance is rarely "bad" for the supplier — it's usually cheap, simple, and confidential — but it has structural weaknesses worth understanding:

• Buyer-driven term extensions. Some buyers introduce supplier finance alongside a unilateral move from 30 to 90 or 120-day terms. The "early payment option" is then framed as a kindness; in reality, it costs you 2–3% to be paid roughly when you used to be paid for free.
• Programme withdrawal risk. Programmes can be paused or terminated by the buyer or platform with little notice. Plan as if the facility can disappear.
• Concentration risk. Heavy reliance on one buyer's programme deepens dependence on that buyer.
• Accounting and disclosure scrutiny. The collapse of Carillion and NMC Health put supplier finance at the centre of accounting controversies — buyers were treating reverse-factored payables as trade debt rather than financial debt. Suppliers shouldn't worry about this directly, but should be cautious about buyers whose financial health depends on aggressive payables management.
• Not a substitute for credit control. Supplier finance only funds approved invoices. It does nothing for disputed invoices, retentions, or back-end payment friction.

Cost

Real costs.

Component	Typical range
Discount rate (priced off buyer's credit)	SONIA + 1%–3.5%
Effective annualised cost to supplier	5%–8% on early-paid amount
Per-invoice fee	£0–£10
Onboarding / KYC	Free for supplier in most programmes

Operational reality

Speed, complexity, certainty, flexibility.

Speed

Onboarding a new supplier onto a buyer's platform typically takes 1–4 weeks (KYC, ID checks, bank account verification). Once live, individual invoice early payments are same-day.

Complexity

Low for the supplier. The buyer and the platform do the heavy lifting. Most programmes integrate seamlessly with the supplier's accounting system. The complexity sits with the buyer — programme setup, accounting treatment, supplier outreach.

Certainty

High once an invoice is approved by the buyer. Approval is the gate — disputed invoices, mis-keyed PO numbers, or missing GRNs (goods received notes) all delay funding.

Flexibility

Genuinely flexible. The supplier chooses, invoice by invoice, whether to take early payment or wait for standard terms. There's no minimum drawdown, no contractual commitment, no obligation to fund any particular volume.

In the market

Who actually uses it.

Supplier finance is overwhelmingly run by large corporates with big supply chains: UK supermarkets, telecoms, defence, manufacturing, infrastructure, and increasingly the public sector. Major UK platforms include Taulia (now SAP), Demica, PrimeRevenue, and bank-led programmes from HSBC, NatWest, Lloyds, and Santander.

If you supply a FTSE 250 customer or any government tier-one contractor, ask whether they have a programme. Many do, but supplier awareness is patchy.

Other options

Alternatives.

• Invoice finance — broader and more flexible, but priced against your business's credit, not your customer's. More expensive in most cases.
• Selective invoice finance — pay-as-you-go alternative when no buyer programme exists.
• Dynamic discounting — useful where the buyer has spare cash and prefers to fund early payments themselves.
• Negotiated payment terms — sometimes a frank conversation with a customer about shortening terms is more effective than financing the gap.
• Trade finance — for cross-border goods movements where the buyer's payment cycle is longer and more complex.

Summary

Summary.

Supplier finance is one of the cheapest, most operationally simple working capital tools available to UK SMEs — when it's available. It's almost always priced below invoice finance, requires almost no balance sheet from the supplier, and can be turned on and off invoice by invoice.

The catch is that it depends on the buyer running a programme. Most SMEs would be better off if their largest customers operated supplier finance schemes. They mostly don't — but it's always worth asking.