Supply chain finance and invoice finance are both cash flow products designed to provide businesses with working capital to support their operations and increase revenue,

The question is what’s the difference between them and when would you use one and not the other?

Invoice Finance

Fifo Capital’s Cameron Keller explains that when a company uses invoice finance to raise funds it sells its SALES invoices (receivables) to a finance company at a discount.

What does that mean in plain speak?

Say, a customer owes you $100 dollars which you’ve agreed will be paid in 30 days.

However, you need the cash now, so you sell the debt to a finance company for $97 and get the cash immediately. 

When the supplier finally pays the $100 the financier gets its money back and earns $3.

How does supply chain finance differ?

Supply Chain Finance

Let’s say, you make widgets and receive an order from an important customer for a thousand of them. 

But you don’t have the working capital to pay for a key component and the supplier insists on being paid long before the widgets are made and sold,

In that instance, you would ask the finance company to pay the supplier for you.

You would pay the money back, and a fee, when your customer pays.

Cash Flow

While both invoice finance and supply chain finance are about improving a company’s cash flow…one focuses on its receivables, the other on its payables.

In what circumstances would you consider using one or the other?

It’s case by case.  A company, like a trucking firm, with mainly C.O.D suppliers and with customers who take a long time to pay might be better suited to invoice finance.

Case by Case

A manufacturer with a lot of suppliers and a long period between money going out and money coming in might be better served by supply chain finance.

However, there is nothing to stop a business using both. 

In that case, you can free up a tonne of your own cash to reinvest in your business and turbo charge your growth.