An Introductory Glossary for Supply Chain Finance
Content
Supply chain finance is an increasingly strategic solution for businesses aiming to optimize working capital, extend payment terms, and improve supplier relationships—without compromising supplier cash flow. Whether you’re a Buyer looking to strengthen your supply chain or a Supplier seeking earlier access to cash, understanding the language of supply chain finance is key to navigating this space confidently.
Like many areas of finance, this ecosystem has developed its own terminology—some of which is inconsistent across regions, platforms, or funders. While the learning curve can feel steep at first, this essential glossary will give you a solid foundation by defining the most important and frequently used terms.
Core Terms & Concepts
Accounts Payable (AP, Payables)
The amount a Buyer owes to its Suppliers for goods or services received—recorded as a liability on the Buyer’s balance sheet.
Accounts Receivable (AR, Receivables)
The amount a Supplier is owed by its Buyer for goods or services delivered—recorded as an asset on the Supplier’s balance sheet.
Advance / Early Payment
A payment made to the Supplier prior to the invoice’s due date—typically in exchange for a discount or fee.
Balance Sheet
A financial statement summarizing a company’s assets, liabilities, and equity. It’s a key tool for assessing creditworthiness and financial risk.
Buyer
The entity purchasing goods or services from a Supplier. In supply chain finance, the Buyer initiates programs to support Supplier liquidity.
Cash Flow & Timing Metrics
Cash Conversion Cycle
The time it takes to turn inventory into cash from sales, calculated as:
DSO + DIO – DPO
DSO (Days Sales Outstanding)
The average number of days it takes a Supplier to collect payment after a sale.
DIO (Days Inventory Outstanding)
How long inventory sits before being sold—used to measure operational efficiency.
DPO (Days Payable Outstanding)
The average time a Buyer takes to pay Suppliers—often extended strategically through supply chain finance.
Payment Solutions
Dynamic Discounting
A variable early payment model where the Supplier receives a discount based on how early they choose to get paid. Funds typically come directly from the Buyer’s own balance sheet.
Early Payment Program
A structured initiative—often tech-enabled—where Buyers offer Suppliers early invoice payments in exchange for a discount, funded by a third-party (Funder).
Extended Payment Terms
An arrangement allowing the Buyer to pay invoices later than standard terms (e.g., extending from Net 30 to Net 90), improving Buyer cash flow without hurting Supplier liquidity.
Invoice
A formal document that specifies the amount owed for goods or services, including payment terms and transaction details. In supply chain finance, the invoice is central to all funding activity.
Parties Involved
Funder
The third-party financial institution—such as a bank or fintech—that advances payment to Suppliers and is later repaid by the Buyer.
Obligor
The legal entity (typically the Buyer) obligated to make payment to the Funder under the program.
Supplier
The company providing goods or services. Participates in early payment programs to improve cash flow.
Key Program Components
Invoice Discount / Fee
The cost paid by the Supplier (often in the form of a discount) in exchange for receiving early payment. While it’s a fee to the Supplier, it’s a discount or savings for the Buyer.
Off-Balance Sheet
When supply chain finance is structured as a true sale of receivables, it can be treated off-balance sheet—meaning it doesn’t appear as a traditional debt liability.
Payables Finance (aka Reverse Factoring)
A form of supply chain finance where a Buyer enables early payment for Supplier invoices through a Funder, usually after invoice approval. The Buyer then pays the Funder on extended terms.
Trade Finance
Financial tools designed to bridge the funding gap between delivery and payment in cross-border trade, ensuring both importers and exporters can fulfill their obligations safely and efficiently.
Technology & Platform Terms
Platform
A technology-based solution (typically web or app-based) that facilitates early payments, Supplier enrollment, reporting, and Buyer-Funder connectivity.
Supplier Portal / Vendor Portal
A secure online interface where Suppliers can view approved invoices, request early payment, and manage program participation.
Supply Chain Finance Marketplace
An auction-style platform where multiple funders bid on invoices, potentially driving variable discount rates. Contrast this with fixed-rate programs where terms are predefined and predictable.
Compliance & Legal Terms
Know Your Customer (KYC)
A compliance process for verifying a participant’s identity and legitimacy—critical for preventing fraud and ensuring regulatory standards are met.
Novation
A legal mechanism where one party’s contractual obligations are transferred to another—common in supply chain finance when a Funder steps into the payment flow between Buyer and Supplier.
Final Word
Supply chain finance is more than just an alternative funding tool—it’s a strategic lever to enhance liquidity, strengthen supply chains, and unlock operational flexibility. Understanding these key terms helps demystify the process and positions your business to fully benefit from everything supply chain finance has to offer.
ABOUT eCapital
At eCapital, we accelerate business growth by delivering fast, flexible access to capital through cutting-edge technology and deep industry insight.
Across North America and the U.K., we’ve redefined how small and medium-sized businesses access funding—eliminating friction, speeding approvals, and empowering clients with access to the capital they need to move forward. With the capacity to fund facilities from $5 million to $250 million, we support a wide range of business needs at every stage.
With a powerful blend of innovation, scalability, and personalized service, we’re not just a funding provider, we’re a strategic partner built for what’s next.
Bruce Sayer
Bruce is a seasoned content creator with over 40 years of experience across various industries. Since 2013 he has been a dedicated member of the eCapital team, publishing informative articles intended to introduce and guide business leaders through effective financing options.
During this time, Bruce's articles have influenced countless of CEOs and other executives to investigate and often implement specialized funding strategies to achieve stable and flexible financial structures.
