The Equation Series
Menu

Industry study 18 of 24 · Supply Chain Research Companion

Trade Finance, Payments and Working Capital

~10,000 words · 2 technical exhibits

Every physical supply chain has a financial one running beside it, usually in the opposite direction and on a different clock. Goods leave a factory in Vietnam or Mexico weeks before they are sold in Ohio; someone has to fund the gap, and someone bears the risk that the buyer will not pay or the goods will not arrive. The instruments are old — letters of credit (governed today by the ICC's UCP 600, in force since 1 Jul 2007), documentary collections and open-account terms — and most trade between established partners now moves on open account (commonly cited at ~80% of world trade, verify), financed by the seller, the buyer, a bank or a platform in between. The modern growth area is supply-chain finance (SCF), above all payables finance or "reverse factoring": a bank or fintech pays a large buyer's suppliers early at a rate set by the buyer's credit, while the buyer pays the funder later. One industry report put global SCF volumes at ~$2.6tn in 2025 (+~7.5% y/y; BCR World Supply Chain Finance Report figure cited secondhand, verify; market-size estimates differ by a factor of a hundred depending on definition). SCF can be a fair trade of a strong buyer's credit for a weak supplier's cash — or a way to borrow without calling it debt. Greensill Capital collapsed on 8 Mar 2021 after its insurer declined to renew cover expiring 1 Mar 2021 and Credit Suisse froze ~$10bn of funds (Finance: Greensill Capital); Americanas, a Brazilian retailer, disclosed ~R$20bn of "accounting inconsistencies" in Jan 2023, much of it supplier-finance debt booked as payables (reclassification added ~R$15.6bn to gross debt, reported). In response, US GAAP now requires buyers to disclose supplier-finance programmes (FASB ASU 2022-04, for fiscal years beginning after 15 Dec 2022, with a rollforward a year later), and IFRS followed (IAS 7/IFRS 7 amendments, from 1 Jan 2024). Underneath sits the cash conversion cycle (CCC) — receivable days plus inventory days minus payable days — which explains why Dell, Amazon and Costco could grow on their suppliers' money and why a retailer stuck with 2022's excess inventory, or an importer paying 2025–26 tariffs at the border, needed more cash at once. This section covers the instruments, SCF and its accounting, dynamic discounting, carrier factoring and quick pay, the CCC, trade credit insurance, tariffs as a working-capital shock, and the failures. A worked example computes a stylized CCC and SCF programme from both sides, and a checklist reviews a programme before signing.

What the study covers

  1. 1Overview: the money moves the other way
  2. 2Units
  3. 3The traditional instruments
  4. 4Supply-chain finance
  5. 5Accounting, disclosure and how analysts treat SCF
  6. 6Dynamic discounting and early-payment marketplaces
  7. 7Freight payments, carrier factoring and quick pay
  8. 8The cash conversion cycle as strategy
  9. 9Trade credit insurance and export credit agencies
  10. 10Tariffs, duties and refunds as working capital
  11. 11Digital trade documents and the paper problem
  12. 12Failures and what they taught
  13. 13How to read working-capital and trade-finance claims
  14. 14Key numbers
  15. 15Landmark companies and cases
  16. 16Pitfalls
  17. 17How an expert thinks about it
  18. 18Glossary

Technical exhibits

Worked examples, checklists and case studies included with this study.

Cash Conversion Cycle and Supply Chain Finance Worked Example

A stylized US retailer extends supplier terms from 45 to 90 days through a payables-finance programme: cash released, what each supplier gains or loses against its own revolver and factoring, dynamic-discount APRs, the ASU 2022-04 disclosure, adjusted leverage, and a funder-withdrawal stress (computed in Python)

Supply Chain Finance Programme Review Checklist

Questions for a buyer's treasurer, a supplier's CFO, a lender or an investor before joining, funding or relying on an SCF, dynamic-discounting or factoring programme

Companies in this study