Supply Chain Finance and Reverse Factoring

Supply chain finance (SCF), or reverse factoring, is a financing arrangement in which a bank pays a buyer’s suppliers early, with the buyer repaying the bank later — often after a longer term than the original invoice. Marketed as helping suppliers, it can also let a buyer extend its effective payment terms and, controversially, keep the resulting liability off its reported borrowing. Carillion’s ‘Early Payment Facility’ was cited by ratings agencies as concealing its true debt level, making SCF a relevant mechanism in how payment delay and insolvency risk are obscured.

Connections

• Carillion — used an Early Payment Facility that masked debt, source: 2018
• Global Subcontractor Payment Delays — SCF can entrench longer payment terms, source: 2018
• Contractor Insolvency and Subcontractor Risk — SCF can hide insolvency warning signs, source: 2018