Reply To: What is the difference between Supply Chain Finance and Invoice Discounting?

[Farhana Begum]

From the borrower’s point of view, factoring and invoice discounting look up the supply chain to a company’s customers and use these debts as security. On the other hand, supply chain finance looks down the supply chain to the suppliers.

Some providers of supply chain finance try to pass it off as something else, but it’s really a type of working capital finance that ensures liquidity in the same way that an overdraft does. The biggest difference is that the money is only used to pay suppliers.

From a security point of view, it makes no sense for a lender to take a supplier invoice as security. If the borrower doesn’t pay back the debt, the supplier isn’t likely to help.