Types of Supply Chain Financing: Which Structure Fits Your Cash Gap?

Every supply chain has a cash gap. A supplier receives a purchase order, pays for production, ships the goods, and then waits 30 to 90 days for the retailer to pay. That gap between spending and receiving payment is where supply chain financing (SCF) lives.

But SCF is not a single product. It is a family of financing structures, each designed to address a different point in the order-to-payment cycle. Choosing the wrong one is like buying flood insurance after the water recedes: the timing is off, and the coverage misses the actual risk.

This guide breaks down the six main types of supply chain financing, explains where each one applies, and helps you identify which structure matches your business's actual funding gap.

Where Each Type Fits in the Supply Chain Cycle

Before examining individual structures, it helps to see where each type activates relative to the flow of goods and cash.

Each type solves a different timing problem. The rest of this article explains how.

Purchase Order Financing

Purchase order (PO) financing funds supplier and production costs tied to a confirmed retail order. A lender pays your suppliers directly, or advances capital for production, based on the strength of the purchase order and the creditworthiness of the buyer placing it.

This type activates before production begins. The lender underwrites the retailer's credit (Walmart, Target, Costco) rather than relying solely on your company's financial history. That makes PO financing accessible to earlier-stage suppliers that traditional banks would decline.

How it works:

1. You receive a confirmed purchase order from a creditworthy retailer.

2. The PO financing lender verifies the order and assesses the buyer's credit, your margins, and your fulfillment plan.

3. The lender pays your supplier or manufacturer directly (or advances production capital).

4. You produce, ship, and deliver the goods.

5. The retailer pays the invoice. The lender deducts fees and remits the remaining balance to you.

Best fit: Brands with confirmed orders that exceed their cash reserves, particularly suppliers entering big-box retail (Walmart, Sam's Club, Target) for the first time or scaling into larger reorder cycles. PO financing fills the gap before production, not after delivery.

Bridge is a marketplace built for Walmart and Sam's Club suppliers. We connect qualified brands with PO financing lenders that can fund up to 100% of COGS on approved transactions, though actual coverage varies by deal specifics. The structure keeps your operating cash free for the rest of the business while the order moves through production and fulfillment.

For a deeper look at how PO financing works step by step, see our guide to financing Walmart purchase orders.

Inventory Financing (Asset-Based Lending)

Inventory financing is a form of asset-based lending (ABL) where your existing inventory, whether raw materials, work-in-progress, or finished goods, serves as collateral for a loan or revolving credit line. Advance rates typically range from 50% to 80% of eligible inventory value, depending on inventory type and lender expertise.

Unlike PO financing, which activates before production, inventory financing addresses capital tied up in goods you already hold. It is especially useful for businesses building safety stock ahead of peak seasons, managing bulk purchasing, or bridging the lag between stocking shelves and collecting revenue.

How it works:

1. The lender appraises your eligible inventory (condition, market demand, turnover rate).

2. You receive a loan or revolving credit line based on a percentage of the inventory's appraised value.

3. You use the capital for operations, purchasing, or growth.

4. As inventory converts to sales and cash, you repay the facility.

Best fit: Businesses with consistent inventory levels and predictable turnover. If you are pre-building stock for a seasonal surge or holding finished goods ahead of distribution, inventory financing keeps capital available without liquidating stock at a discount.

To compare how PO and inventory financing work together in a capital stack, see our working capital financing comparison.

Accounts Receivable Financing and Factoring

Accounts receivable (A/R) financing converts outstanding invoices into immediate cash. Instead of waiting 30 to 90 days for a retailer to pay, you sell unpaid invoices to a financing company (called a factor) at a discount, typically receiving 70% to 90% of the invoice value upfront.

This type activates after delivery. You have shipped the goods, the retailer has received them, and you hold an invoice with payment terms. The factor advances cash against that invoice, and the retailer pays the factor directly when the invoice matures. Once collected, the factor remits the remaining balance minus fees.

How it works:

1. You deliver goods and issue an invoice to the retailer.

2. The factoring company advances 70% to 90% of the invoice value.

3. The retailer pays the factoring company on standard terms (Net 30, Net 60, Net 90).

4. The factor releases the remaining balance, less a factoring fee.

A/R financing differs from PO financing in one critical way: it only works after goods are delivered and invoiced. It does not fund production or supplier payments before shipment. A brand that needs pre-production capital should look at PO financing first, then layer A/R financing on the back end to accelerate cash collection after delivery.

Best fit: Businesses with a steady flow of invoices from creditworthy buyers and payment terms of 30 days or longer. Factoring is generally less expensive than PO financing, making it a cost-efficient choice when the funding need falls after shipment rather than before production.

For a comparison of PO, inventory, and A/R financing for CPG brands, see our CPG retail financing guide.

Reverse Factoring (Payables Finance)

Reverse factoring, also called payables finance or supplier finance, is a buyer-led program. The buyer (typically a large retailer or manufacturer) arranges with a financial institution to pay its suppliers early, at a discount tied to the buyer's credit rating rather than the supplier's.

This structure flips the initiation. In standard A/R factoring, the supplier approaches a factor independently. In reverse factoring, the buyer sets up the program and invites suppliers to participate. Because the financing cost is based on the buyer's stronger credit, suppliers often receive better terms than they could negotiate alone.

The Global Supply Chain Finance Forum, a consortium of BAFT, FCI, ICC, ITFA, and the EBA, identifies payables finance as one of the most widely adopted SCF techniques globally. The scale of adoption is significant: the SFNet 2025 Secured Finance Market Sizing Study reported that supply chain finance reached $2.56 trillion in annual volume, with $640 billion in funds in use, and that volume continues to grow heading into 2026.

How it works:

1. The buyer approves an invoice for payment.

2. The buyer's financial institution offers to pay the supplier early at a discount.

3. The supplier accepts and receives early payment.

4. The buyer repays the financial institution on the original payment terms.

Best fit: Suppliers whose buyers already operate a payables finance program. The supplier benefits from earlier cash without taking on new debt, and the buyer extends its own payment terms while keeping suppliers financially stable. However, the supplier cannot initiate a reverse factoring program on its own: it depends on the buyer's decision to create one.

Dynamic Discounting and Distributor Finance

Two additional SCF techniques fill specific gaps that the primary structures above do not cover.

Dynamic discounting

Dynamic discounting is buyer-funded, with no third-party lender involved. The buyer offers to pay invoices early in exchange for a discount calculated dynamically based on how early the payment occurs. The earlier the supplier accepts payment, the larger the discount the buyer receives.

This technique works when the buyer has excess cash and wants to earn a return by paying suppliers ahead of schedule. For the supplier, it provides faster cash at the cost of a margin reduction. Unlike reverse factoring, dynamic discounting does not require a bank or financial institution, and the discount structure is usually more flexible.

Distributor finance

Distributor finance provides capital to a distributor of a large manufacturer, covering the cost of holding goods for resale and bridging the gap until the distributor collects from its own customers. The Global Supply Chain Finance Forum categorizes this under the "Loans" family of SCF techniques.

This type is common in industries where a manufacturer sells through distributors who hold inventory, such as automotive parts, electronics, and industrial equipment. The manufacturer's credit and the distributor's track record both factor into underwriting.

How to Choose the Right Structure

The right supply chain financing structure depends on where your cash gap falls in the order-to-payment cycle. Here is a decision framework:

Several of these structures can work together. A CPG brand fulfilling a Walmart purchase order might use PO financing to fund production, then layer A/R factoring on the back end to accelerate collection after delivery. That combination covers both sides of the cash cycle.

The comparison is rarely between one SCF product and another. It is usually between SCF and the next dollar of capital the business would otherwise use: operating cash, a credit line, or equity proceeds. For growing brands, the question is whether production spending should consume growth capital when a dedicated structure exists to handle it.

For a broader look at how these structures fit into a CPG brand's capital stack, see our guide to funding seasonal inventory builds.

FAQs

Can PO financing and A/R factoring be used together?

Yes. PO financing covers pre-production costs (paying suppliers, funding manufacturing), while A/R factoring accelerates cash after delivery by converting invoices into immediate payment. Many suppliers use both in sequence to cover the full order-to-payment cycle.

What is the difference between reverse factoring and regular factoring?

Regular factoring is supplier-initiated: you sell your invoices to a factor for immediate cash. Reverse factoring is buyer-initiated: the buyer sets up a program with a financial institution that pays suppliers early at rates based on the buyer's credit. Reverse factoring typically costs less for the supplier because the financing is based on the buyer's stronger credit rating.

Does Walmart offer early payment programs for suppliers?

Walmart offers early payment options that accelerate cash after goods are delivered and invoiced. These programs do not fund production or supplier costs before shipment. If you need capital to produce and fulfill a Walmart order before delivery, purchase order financing covers that pre-production gap.

How is inventory financing different from a standard business loan?

Inventory financing uses your inventory as collateral, with advance rates tied to the appraised value of your stock. A standard business loan is underwritten based on your company's overall financial history, credit score, and cash flow. Inventory financing is asset-specific, meaning it can work for businesses with limited operating history but strong inventory positions.

Which type of supply chain financing is cheapest?

Cost depends on risk profile, timing, and who initiates the financing. Reverse factoring (buyer-led) generally carries the lowest cost because it is priced off the buyer's credit. A/R factoring is typically less expensive than PO financing. PO financing costs more because the lender takes on pre-delivery risk. The relevant comparison for most growing brands is not which SCF type is cheapest, but which one matches the actual cash gap and whether the alternative is using operating cash or equity that could be deployed elsewhere.

One Cash Cycle, Multiple Structures

Supply chain financing is not a single product. It is a toolkit. PO financing, inventory financing, A/R factoring, reverse factoring, dynamic discounting, and distributor finance each address a specific point in the cash cycle. The right choice depends on when your cash gap occurs and who initiates the financing.

For brands supplying Walmart and other national retailers, the cash gap often hits hardest before production, when the order is confirmed but the capital to produce it has not arrived. That is the gap PO financing is built to fill.

Bridge is a marketplace built for Walmart and Sam's Club suppliers. We connect qualified brands with PO financing lenders that can fund up to 100% of COGS on approved transactions, though actual coverage varies by deal specifics. If you have a confirmed order and need capital to produce it, request financing to start the conversation.