The way businesses in the US fund their supply chains has shifted. Buyers are stretching payment terms, suppliers need cash sooner, and traditional credit lines no longer cover the full working capital cycle. Supply chain finance has stepped in to fill that gap.
According to the World Supply Chain Finance Report 2025, global supply chain finance volumes reached USD 2.46 trillion in 2024, up 8% year on year, with funds in use growing to USD 942 billion. The Americas alone accounted for USD 1.23 trillion of that volume.
Supply chain finance is not a single product. It is a family of instruments, each solving a different liquidity problem at a different point in the trade cycle. This guide breaks down the main types and where each one fits.
What is supply chain finance?
The Global Supply Chain Finance Forum, an industry body comprising BAFT, ICC, FCI, EBA and ITFA, defines supply chain finance as the use of financing and risk mitigation practices to optimise the working capital invested in supply chain processes (Global Supply Chain Finance Forum, 2016).
In plain terms, supply chain finance unlocks capital that would otherwise sit idle inside invoices, inventory, or production runs. It connects three parties: the buyer, the supplier, and a finance provider. The provider injects liquidity where the trade cycle is starved of cash, and recovers the funds when the underlying transaction settles.
For a deeper look at how this fits into modern working capital strategy, Drip Capital's guide on supply chain finance for longer payment terms is a useful companion read.
The three categories of supply chain finance
The ICC's Standard Definitions group all supply chain finance techniques into three categories.
| Category | What it funds | Common techniques |
|---|---|---|
| Receivables Purchase | A finance provider buys the supplier's receivable outright | Reverse factoring, factoring, forfeiting, receivables discounting |
| Loans and Advances | A loan secured against trade assets like inventory or receivables | Pre-shipment finance, distributor finance, inventory finance |
| Advanced Payable | Buyer-led early payment without sale of receivable | Dynamic discounting, corporate payment undertaking |
The next sections walk through each technique in turn.
Reverse factoring (approved payables finance)
Reverse factoring is the largest single category of supply chain finance globally. The buyer initiates the program. Once the buyer approves a supplier invoice, the finance provider pays the supplier early at a discounted rate based on the buyer's credit profile, not the supplier's. The buyer then repays the financier on the original due date.
Why it matters: small suppliers borrow at the strong credit rating of a large buyer, and buyers can extend payment terms without choking their suppliers. Drip Capital's work in reverse factoring for shippers and importers shows how this plays out in cross-border trade.
Best for: large buyers with stable supplier bases who want to support smaller vendors.
Receivables discounting
In receivables discounting, the supplier sells individual invoices, or a pool of them, to a financier at a discount. Unlike full factoring, this is usually done on a confidential basis. The buyer often does not know the receivable has been sold, and the supplier remains responsible for collection.
Best for: mid-size suppliers with strong-credit buyers who want fast cash without disrupting buyer relationships.
Factoring and forfeiting
Factoring is one of the oldest forms of supply chain finance. The supplier sells its trade receivables to a factor, who then handles collection. Two flavors exist: recourse factoring, where the supplier reimburses the factor if the buyer fails to pay, and non-recourse factoring, where the factor absorbs the credit risk.
Most US factors advance 80 to 90% of invoice value upfront, with the balance paid on collection. Fees typically range from 1 to 5% per invoice.
Forfaiting is the long-tenor cousin of factoring. A finance provider buys trade receivables, usually backed by promissory notes or letters of credit, on a non-recourse basis. Tenors are longer (often 180 days to 7 years) and tickets are larger.
Best for: SMBs that want both financing and credit control outsourced (factoring); exporters of capital goods or industrial equipment (forfaiting).
Pre-shipment finance
Pre-shipment finance covers the gap before goods are even shipped. A supplier with a confirmed order, or letter of credit, draws against it to buy raw materials, pay labor, or fund production. Once the goods ship and the invoice is raised, post-shipment financing takes over.
This overlaps closely with purchase order financing. Drip Capital's guide on purchase order financing vs invoice financing covers when each fits in the cycle.
Best for: manufacturers and exporters who need capital to fulfill an order they have already won.
Inventory finance
Inventory financing lets a business borrow against stock sitting in a warehouse, in transit, or under a warehouse receipt. Lenders typically advance 50 to 80% of the inventory's wholesale value.
Common structures, covered in detail in Drip's types of inventory financing guide, include warehouse receipt finance, floor plan finance, and inventory lines of credit. Each suits a different stage of the inventory holding period.
Best for: importers and wholesalers that hold significant stock between purchase and sale.
How to choose the right supply chain finance type
Choosing depends on three factors: where the cash flow gap sits in the trade cycle, who initiates the program, and the credit profile of the parties involved.
| If the gap is at... | And you are the... | Consider |
|---|---|---|
| Production stage | Supplier | Pre-shipment finance, PO financing |
| Inventory holding stage | Importer or wholesaler | Inventory finance |
| Approved invoice stage | Buyer | Reverse factoring, dynamic discounting |
| Approved invoice stage | Supplier | Factoring, receivables discounting |
| Distributor sales stage | Manufacturer | Distributor finance |
| Long-tenor export | Exporter | Forfaiting |
The right choice often involves stacking two techniques. A US importer might pair PO financing with inventory finance, then move into reverse factoring once supplier relationships mature. A view on where the future of supply chain finance is heading is also worth a read for buyers planning multi-year programs.
Frequently asked questions
Is supply chain finance considered debt on the balance sheet?
It depends on the structure. Under IASB rules effective from January 2024, companies must disclose supplier finance arrangements in their financial statements. Most reverse factoring is recorded as trade payables rather than financial debt, but treatment varies by jurisdiction. Speak with your auditor before assuming either way.
What is the typical cost of supply chain finance?
Reverse factoring typically runs 50 to 200 basis points above the buyer's borrowing cost. Factoring fees range from 1 to 5% per invoice. Dynamic discounting prices the discount as an effective annualised rate, often well above bank deposit yields.
Can SMBs access supply chain finance, or is it only for large corporates?
Bank-led programs have historically favored large suppliers with strong balance sheets. Fintech-led supply chain finance providers have opened the market to SMBs by underwriting on transaction-level data, buyer credit, and trade history rather than supplier balance sheets alone.
How long does it take to set up a supply chain finance program?
Bank-led programs often take 8 to 12 weeks to onboard. Fintech programs can be live in 7 to 14 days, with disbursements within 24 to 48 hours of invoice approval.
Does the buyer need to participate for a supplier to access supply chain finance?
Not always. Buyer-led techniques like reverse factoring and dynamic discounting need buyer participation. Supplier-led techniques like factoring, receivables discounting, and PO finance work without buyer involvement, though buyer credit quality still drives pricing.
Build your supply chain finance program with Drip Capital
Most businesses in the US do not need every type of supply chain finance covered above. They need the one that fits their cash flow gap, their suppliers, and their growth plan.
Drip Capital structures supply chain finance programs for America's growing businesses across both domestic and global trade. Funding ranges from USD 50,000
