Supply Chain Finance in India: How It Works for Businesses
Supply Chain Finance in India: A Guide for Buyers and Suppliers
In any supply chain, there is always a tension between what buyers want (longer payment terms) and what suppliers need (faster payment). Supply chain finance is a set of solutions designed to resolve this tension using the buyer’s credit rating to unlock affordable funding for the supplier.
If you are either a large corporate buyer or a supplier in a large buyer’s ecosystem, here is how supply chain finance (SCF) works in India and how to access it.
What Is Supply Chain Finance?
Supply chain finance is an umbrella term for financing solutions that sit at the intersection of a supply chain relationship. The most common form is reverse factoring (also called approved payables finance or dynamic discounting).
In reverse factoring, a large buyer works with a financial institution. The supplier raises an invoice to the buyer. The buyer approves the invoice on the SCF platform. The financial institution then offers the supplier early payment (at a rate based on the buyer’s credit rating, not the supplier’s). The buyer pays the financial institution at the original due date.
Key SCF Products in India
| Product | Who Initiates | Key Benefit |
|---|---|---|
| Reverse Factoring (Approved Payables Finance) | Buyer | Supplier gets cheap early payment; buyer retains extended terms |
| Dynamic Discounting | Buyer (using own cash) | Buyer earns a return; supplier gets faster payment |
| Dealer Finance | Manufacturer / Lender | Dealers get credit to buy inventory from OEM |
| Vendor Finance | Corporate / Lender | Vendors get pre-approved credit based on relationship with the corporate |
Interest Rates
Since SCF pricing is anchored to the buyer’s credit rating (not the supplier’s), it is typically much cheaper for suppliers than standalone invoice discounting or working capital loans.
- For suppliers of large AAA/AA-rated corporates, rates can be as low as 8.5 to 10.5% per annum.
- For mid-tier buyer-anchored programs, rates range from 11 to 15% per annum.
- NBFCs like KredX, M1xchange, and Receivables Exchange of India (RXIL) facilitate platform-based SCF.
Eligibility
For suppliers:
- You must be a registered supplier to a corporate that has set up an SCF program with a lender.
- Invoices must be approved and undisputed by the buyer.
- Basic KYC, GST registration, and active bank account required.
For buyers setting up a program:
- Minimum turnover of Rs 100 crore preferred (varies by lender).
- Good credit rating (CRISIL, ICRA, or CARE rated).
Documents Required (For Suppliers)
- GST registration certificate
- Bank account details and cancelled cheque
- KYC of the business owner
- Approved invoices (digitally accepted by buyer on the SCF platform)
How to Access SCF as a Supplier
- Ask your buyer if they have an SCF program. Large corporates like Tata, Reliance, Infosys, and Mahindra have active SCF programs with bank partners (SBI, HDFC, ICICI, Axis).
- Get registered on the buyer’s SCF platform. The buyer’s procurement team will guide you through the onboarding process.
- Submit invoices for early payment as needed. Once registered, you can choose which invoices to discount early. You are not obligated to discount every invoice.
- Funds are credited to your account within 1 to 2 business days of selecting early payment on the platform.
SCF for Export Supply Chains
For exporters, EXIM Bank and TReDS platforms support cross-border supply chain finance. The RBI has also issued guidelines on cross-border factoring to facilitate international SCF arrangements.
FAQ
How is supply chain finance different from invoice discounting?
In invoice discounting, the supplier independently approaches a lender to discount their invoices. In supply chain finance (reverse factoring), the buyer sets up the program, and the pricing benefits from the buyer’s credit rating. SCF is typically cheaper for the supplier.
Does the buyer need to be large for supply chain finance to make sense?
Generally, yes. SCF programs are most effective when the buyer has a strong credit rating, because that is what drives down the cost for suppliers. For smaller buyers without a credit rating, traditional invoice discounting or MSME loans are more appropriate.
Can small suppliers access TReDS for SCF?
Yes. TReDS is specifically designed to help MSME suppliers discount invoices against large corporate buyers. The MSME seller registers on platforms like M1xchange, Invoicemart, or RXIL, and financiers compete to offer the best rate on approved invoices.
