Supply Chain Finance: How Indian Exporters Access Early Payment from EU Buyers

Supply chain finance — also called reverse factoring or confirming — is a financial arrangement initiated by the buyer to allow suppliers to receive early payment at a cost reflecting the buyer credit rating rather than the supplier. The result: an Indian exporter who normally waits 90 days for payment can receive payment in 2-5 days at approximately 2-4% per annum discount — significantly cheaper than Indian working capital rates of 8-12%.

How it works: (1) Indian exporter ships goods and raises invoice for USD 1 million due in 90 days; (2) EU buyer approves the invoice in their SCF platform (Taulia, C2FO, PrimeRevenue, or a bank platform); (3) Indian exporter sells the approved invoice to the SCF funder and receives USD 985,000 today (1.5% discount for 90 days); (4) SCF funder collects USD 1,000,000 from EU buyer on day 90.

Who offers SCF to Indian suppliers: Volkswagen, BMW, Airbus (for auto and aerospace components), Unilever, Nestle (for agro-food), H&M, IKEA (for textiles and furniture), Carrefour, Tesco (for FMCG). Suppliers must be on the EU buyer approved vendor list and the buyer must choose to onboard them into the SCF programme.

Risks to manage: (1) Working capital dependency — if the SCF programme is disrupted, cash flow crisis follows; (2) Debit note risk — if the EU buyer disputes a transaction after early payment, repayment with interest is required; (3) Legal review — ensure platform assignment provisions are reviewed by counsel before joining any SCF programme.