What is supply chain finance?
Supply chain finance (SCF) is a collateral-free short-term working capital financing solution designed to help micro, small and medium enterprises (MSMEs) optimise their working capital and improve cash flow without pledging any assets.
SCF enables businesses to access funding against invoices or purchase orders, allowing them to unlock funds tied up in receivables and maintain smooth business operations. The solution is particularly beneficial for traders, manufacturers and service providers seeking timely access to working capital to support growth and operational requirements.
Supply chain finance helps businesses maintain liquidity, strengthen supplier and buyer relationships, and improve overall financial efficiency across the supply chain.
Market opportunity
The supply chain finance market serves a diverse range of MSMEs, including traders, manufacturers and service providers that require flexible working capital solutions.
With increasing formalisation of the MSME sector, growing demand for business credit and various government initiatives supporting small businesses, the need for efficient financing solutions continues to rise. Supply chain finance addresses this requirement by providing quick access to funds against business transactions and invoices.
Who can apply?
Our target customer segment comprises self-employed non-professionals engaged in business activities, including:
- Traders
- Manufacturers
- Service providers
- Proprietorship firms
- Partnership firms
- Limited Liability Partnerships (LLPs)
- Private Limited Companies
- Public Limited Companies
The product is designed for businesses seeking funding against invoices to meet short-term working capital requirements.
Types of supply chain finance
1. Sales invoice finance (vendor finance)
Sales invoice finance, also known as vendor finance, enables businesses to obtain funding against accepted and verified invoices raised on buyers (anchors). The anchor confirms the invoice, allowing businesses to receive funds before the payment due date.
This helps vendors improve liquidity, accelerate cash flow and reduce dependence on delayed customer payments.
Key features
- Funding against accepted and verified invoices
- Faster conversion of receivables into working capital
- Improved cash flow management
- Collateral-free financing
- Competitive borrowing costs
- Funding linked to approved invoices
- Multiple tranche loans available within the approved facility
- Facility available for up to 12 months, subject to annual renewal
2. Purchase invoice finance (dealer finance)
Purchase invoice finance, also known as dealer finance, provides funding against accepted invoices or purchase orders to support inventory procurement and business operations.
The facility enables dealers and businesses to purchase stock, fulfil customer demand and manage working capital requirements effectively.
Key features
- Funding against verified invoices or purchase orders
- Direct disbursement to supplier (anchor) accounts
- Improved inventory management
- Enhanced working capital availability
- No collateral requirement
- Flexible access to funds through tranche-based disbursements
- Support for business expansion and procurement requirements
How supply chain finance works
Supply chain finance operates through a pre-approved facility under which customers can avail funding against eligible invoices or purchase orders.
Step 1: Facility assessment and approval
The customer's eligibility is assessed based on:
- Banking transactions
- Financial performance
- GST compliance
- Sales and purchase trends
- Credit bureau history
- Internal scorecards
- Business relationship with anchors
Upon successful assessment, an SCF facility is approved.
Step 2: Submission of invoices
The customer uploads:
- Sales invoices
- Purchase invoices
- Purchase orders
- Combination of invoices
for funding under the approved facility.
Step 3: Invoice verification
The invoices are verified to ensure compliance with programme guidelines and available facility limits.
Step 4: Tranche loan creation
A separate tranche loan is created against each approved invoice or combination of invoices.
Step 5: Disbursement
Funds are disbursed according to the approved tranche loan structure.
Step 6: Repayment
Repayment is made according to the selected repayment option.
Example of supply chain finance
A manufacturer supplies goods worth Rs. 20 lakh to a large buyer and raises an invoice with a payment term of 90 days.
Instead of waiting for the buyer to make payment after 90 days, the manufacturer submits the accepted invoice for financing under the approved SCF facility.
Following verification, funds are disbursed against the invoice, enabling the manufacturer to:
- Maintain healthy cash flow
- Purchase raw materials
- Meet operational expenses
- Accept additional orders
The manufacturer receives immediate liquidity while continuing business operations without disruption.
Features and benefits of supply chain finance
High-value funding
Access working capital facilities ranging from Rs. 2 lakh to Rs. 5 crore to meet business requirements.
Collateral-free finance
Obtain funding without pledging any assets or creating any security on receivables.
Flexible tranche-based funding
Customers can avail multiple tranche loans during the facility validity period against eligible invoices and purchase orders.
Improved cash flow
Unlock working capital tied up in invoices and improve liquidity for day-to-day operations.
Competitive pricing
Benefit from competitive interest rates ranging from 9.00% to 22.00% per annum.
No prepayment charges
Part-prepayments can be made without any prepayment penalties.
Facility validity
The approved SCF facility remains valid for 12 months and may be renewed upon reassessment.
Flexible repayment options
Choose repayment structures that align with business cash flows.
Loan structure
SCF facility amount
Particulars | Amount |
Minimum facility amount | Rs. 2,00,000 |
Maximum facility amount | Rs. 5,00,00,000 |
Tranche loan tenure
Particulars | Tenure |
Minimum tenure | 15 days |
Maximum tenure | 120 days |
Interest type
Fixed rate of interest
Interest rate
9.00% to 22.00% per annum
Interest calculation method
Written down value (WDV)
Repayment options
Option 1
Principal and interest payable at the end of the tranche loan tenure.
Option 2
Monthly interest payments during the tenure and principal repayment at maturity.
Eligibility criteria
Eligibility is assessed based on a combination of financial, business and credit parameters.
Applicant criteria
- Self-employed non-professionals
- Traders
- Manufacturers
- Service providers
- Proprietorship firms
- Partnerships
- LLPs
- Private Limited Companies
- Public Limited Companies
Age criteria
Particulars | Requirement |
Minimum age | 21 years |
Maximum age | 80 years at loan maturity |
Credit bureau criteria
- Minimum CIBIL score of 650
- CIBIL score of 0 or -1 may be considered as per internal policies and programme requirements
Banking criteria
Minimum annualised banking credits of Rs. 10 lakh
Business history
Proof of business ownership and vintage required
Minimum three months of banking history required
Invoice criteria
Invoices should not be more than 60 days old
Documents required
The following documents may be required during onboarding and loan processing:
KYC documents
- Identity proof
- Address proof
- Business proof
Financial documents
- Bank statements
- Financial records
- GST details, where applicable
Mandatory documents
- Application form
- PAN card or Form 60
- Insurance consent, where applicable
- Key facts statement (KFS)
- Loan sanction letter-cum-agreement
- NACH mandate or e-mandate
- Welcome letter
- Tranche loan sanction letter
Interest rates and charges
Interest rate
9.00% to 22.00% per annum
Processing fee
Up to 2.36% of the approved SCF facility amount (inclusive of applicable taxes)
Stamp duty
Applicable as per the stamp laws of the respective state
Bounce charges
Rs. 1,500 per bounce
Bounce charges apply in cases of:
- Dishonour of any payment instrument
- Non-payment of instalments on the due date
- Dishonour of payment mandates
- Non-registration of payment mandates
- Any other payment-related failure
Penal charges
Delay in payment of instalments shall attract penal charges at the rate of 36% per annum on the overdue instalment amount from the respective due date until full payment is received.
Credit assessment and underwriting
All applications undergo a comprehensive credit assessment process based on:
- Bureau performance
- Internal repayment history
- Banking analysis
- Financial statements
- GST information
- Sales and purchase trends
- Internal scorecards
- Anchor relationships
In addition, customer details, KYC information and banking records are verified as part of the underwriting process.
A personal discussion may also be conducted by the credit team to assess overall eligibility.
Grievance redressal framework
A structured grievance redressal mechanism is available to address customer concerns efficiently.
The framework includes:
- Grievance redressal mechanism
- Complaint classification process
- Internal Ombudsman review
- Reparation policy
- Refund and waiver process
- Loan cancellation process
- Insurance cancellation support
The objective is to ensure transparency, fairness and timely resolution of customer grievances.
Why choose supply chain finance?
Supply chain finance provides MSMEs with a flexible and efficient working capital solution without the need for collateral. By enabling businesses to access funds against invoices and purchase orders, SCF improves liquidity, supports business growth and enhances cash flow management.
Key advantages include:
- Collateral-free funding
- Facility amount up to Rs. 5 crore
- Flexible tranche-based utilisation
- Competitive interest rates
- No prepayment charges
- Improved working capital management
- Faster access to business finance
- Support for traders, manufacturers and service providers
Whether you are looking to fund receivables, procure inventory or manage short-term working capital requirements, supply chain finance offers a practical financing solution to help your business grow with confidence.
FAQ Suggestion
Supply chain finance, also known as reverse factoring, helps businesses improve their cash flow by letting them pay their suppliers over a longer period of time, while giving their large and small suppliers the option to get paid early.
Managing the supply chain is the combined responsibility of your business’s operations and finance departments. While your operations team is responsible for the movement of goods, your finance arm foots the bills from your suppliers.
Help them keep your business’s supply chain running smoothly by opting for a business loan. Get up to Rs. 80 lakh for maintaining a healthy balance of working capital.
The process flow of supply chain finance involves three main steps: 1) the buyer approves the invoice and requests early payment, 2) the supplier requests early payment from a financing provider, and 3) the financing provider pays the supplier and collects payment from the buyer at a later date.
To choose a provider for supply chain finance, consider factors such as their reputation, experience, financing rates, customer support, and technology platform capabilities.
The main difference between supply chain finance and factoring is that supply chain finance involves the financing of invoices between a buyer and supplier, while factoring involves the sale of accounts receivable by a business to a third-party financer. Supply chain finance is also typically more flexible and less expensive than factoring.
The objectives of supply chain finance are to optimise working capital, enhance financial stability, and drive economic growth by aligning payment cycles with the supply chain. It aims to provide access to finance for businesses that may not qualify for traditional financing and allow suppliers to receive early payment at discounted rates.
Supply chain finance is an important topic as it improves the liquidity of businesses, reduces financing costs, mitigates supply chain risks, and enhances financial performance. It increases transparency in the supply chain and fosters collaboration among suppliers, buyers, and financial institutions.
Supply chain finance provides benefits such as improved cash flow management, access to finance, lower financing rates, optimised inventory levels, and minimised payment disputes. It reduces the risk of supply chain disruption and increases the competitiveness of businesses. It can also strengthen supplier relationships and foster innovation in the supply chain.
A: Supply Chain Financing (SCF) is an unsecured, short-term working capital solution for MSMEs. It provides liquidity by financing against approved invoices without the need for collateral. The facility is generally valid for 12 months, helping vendors and dealers improve cash flow and manage business cycles effectively. Below products are offered in SCF.
- Vendor Finance: Loan to a seller that is repaid through funds generated from current or future receivables.
- Distributor/ Channel finance: Financing for a distributor of a corporate to provide funds to hold goods for sale and to reduce the liquidity gap.
A:
For Anchor (Large Buyer/OEM)
- Efficient cash flow cycles.
- Improves supplier reliability and performance.
- Enhances working capital without affecting own balance sheet.
- May negotiate better terms or pricing with vendors.
For Vendor (Supplier)
- Faster access to funds (early payment).
- Reduced Days Sales Outstanding.
- Lower cost of borrowing (based on anchor’s credit rating).
- Improved cash flow and liquidity.
For Dealer (Distributor)
- Access to credit for purchasing inventory.
- Extended payment terms.
- Better inventory management.
- Reduced dependency on own working capital.
A: Loan tranche can be upto 120 days from the date of disbursement.
A:
- One of the following repayment options would be provided to the borrower:
- Principal Plus Interest at the end of tranche loan tenure
- Monthly interest payment and principal at the end of the tranche loan tenure.
- There are no early repayment or foreclosure charges applicable. Borrowers have the flexibility to prepay or close the loan at any time during the tranche period without incurring any penalties.
