90-Day Payment Terms: Supplier Finance Options for SMEs

90-Day Payment Terms: Supplier Finance Options for SMEs

Illustrative scenario. No company, customer, transaction, approval, or financial outcome described below is real.

An SME manufacturer receives a repeat order from a large international buyer. The commercial opportunity is attractive, but the buyer requests payment 90 days after invoice approval. The supplier must purchase materials, run production, pay staff, and arrange shipment before receiving cash.

The problem is not necessarily profitability. It is timing: operating costs arise well before the receivable is paid.

This practical case shows how an SME can analyze the gap without assuming that one instrument automatically solves every stage of the transaction.

The scenario

The supplier produces industrial components for a buyer in another market. The proposed sequence is:

1. The buyer issues a purchase order.
2. The supplier purchases materials and manufactures the goods.
3. The goods are inspected and shipped.
4. The supplier issues an invoice.
5. The buyer approves the invoice.
6. Payment falls due 90 days after approval.

The supplier therefore faces two different funding periods:

• Before shipment: materials, production, payroll, inspection, and logistics must be funded.
• After invoice approval: the supplier waits for the buyer’s payment date.

These periods should be assessed separately because they rely on different evidence and may require different financing structures.

The first mistake: treating a purchase order as cash

A signed purchase order confirms commercial intent, but it does not necessarily establish an unconditional payment obligation. Production may still be subject to specifications, inspection, delivery, acceptance, cancellation provisions, or dispute rights.

Before discussing finance, the supplier should map:

• the contracting parties;
• product and delivery obligations;
• inspection and acceptance points;
• invoice-approval conditions;
• payment date and currency;
• rights of set-off, return, rejection, or cancellation;
• governing law and dispute process.

The stronger and clearer the commercial record, the easier it is for a finance provider to understand when an obligation may become eligible.

The second mistake: using one structure for two different gaps

Pre-shipment working-capital need

Before the goods are produced and accepted, the supplier’s need relates to performance risk and production funding. Possible structures may include a working-capital facility, purchase-order finance, an advance payment supported by appropriate contractual protections, or another transaction-specific arrangement.

Eligibility, collateral, recourse, pricing, and documentation vary by provider. A purchase order alone does not guarantee approval.

Post-approval receivables need

After the buyer approves an invoice, supplier finance or another receivables-based structure may become relevant. In a common payables-finance program, the approved invoice and the buyer’s payment undertaking form part of the eligibility assessment. The supplier may be offered early payment, while the buyer pays the finance provider at maturity.

The IFC describes supply chain finance as a broad set of products that uses buyer–seller relationships and transaction information. Its Global Supply Chain Finance program focuses mainly on reverse factoring, or supplier finance, for eligible suppliers.

This program description does not imply that reverse factoring or supplier finance is available through Credit Glorious, or that the IFC structure applies to all provider programs.

This does not mean that every approved invoice will be financed or that every program is without recourse. Those terms are program-specific.

Where a letter of credit may fit

If the parties are concerned about documentary payment conditions before shipment, a letter of credit may be considered. It can define the documents that must be presented for payment under the credit’s terms.

A letter of credit is not the same as supplier finance. When UCP 600 is incorporated into a documentary credit, it governs the rights and obligations under that credit. It does not govern supplier finance, factoring, or payables programs.

• A documentary credit structures payment against stipulated documents.
• Supplier finance commonly relies on an approved receivable within a buyer-led program.
• Neither instrument automatically provides production funding.
• Neither removes the need for sanctions, compliance, fraud, document, and counterparty checks.

The appropriate structure depends on the contract, payment mechanism, timing of the funding need, and parties involved.

An illustrative decision path

Step 1: Build the cash-flow timeline

List each expected cash outflow and inflow from purchase order to final payment. Use conservative dates and include inspection, customs, shipment, invoice approval, and possible dispute periods.

Step 2: Define the funding gap

Separate the amount and duration needed before shipment from the amount and duration tied to an approved receivable. Do not combine them into a single request without explanation.

Step 3: Test transaction eligibility

For receivables or supplier finance, questions to address include:

• Does the buyer operate or accept a program, and is this supplier in scope?
• At what point is an invoice considered approved and irrevocable for program purposes?
• Which currencies, jurisdictions, and supplier categories are eligible?
• Are there minimum or maximum invoice thresholds?
• How are disputes, credit notes, returns, and dilution treated?
• Is financing disclosed to the buyer, and is it offered with or without recourse?

Step 4: Compare total terms

Compare fees, discount calculation, payment timing, recourse (full, limited, or none, and in which circumstances), termination rights, data-sharing, operational workload, and accounting or legal treatment. A lower headline rate may not capture the full commercial effect.

Step 5: Align the contract and documents

The purchase order, contract, invoice, inspection evidence, transport documents, and program data should describe the same transaction. Inconsistencies can delay or prevent eligibility.

Step 6: Keep a contingency

The supplier should plan for delayed approval, disputed invoices, shipment changes, or program suspension. Financing should not be presented internally as certain until the provider has confirmed eligibility and terms.

What a decision-ready file contains

A concise file for a finance provider or adviser may include:

• signed contract and purchase order;
• buyer and supplier corporate information;
• production and shipment timeline;
• cash-flow schedule;
• pro forma and final invoices;
• inspection and acceptance requirements;
• payment terms and invoice-approval process;
• existing security, assignments, or financing arrangements;
• requested amount, period, and purpose;
• unresolved commercial, legal, compliance, or documentation questions.

The objective is not to force a preferred instrument. It is to show the transaction clearly enough to identify which gap may be financeable and at what stage.

Practical outcome

In this illustrative scenario, the supplier does not claim that 90-day terms are “solved” by a guarantee, letter of credit, or supplier-finance label. Instead, it separates production funding from the approved-receivable period, confirms the buyer’s process, and prepares the documents that a provider may require to assess each stage.

That is the useful result: a transaction that is more decision-ready, with no assumption of approval, pricing, or financial outcome.

Primary sources

• IFC Global Supply Chain Finance Program.
• IFC Supply Chain Finance Knowledge Guide.
• ICC Digital Library: UCP 600, for documentary credits when the rules are incorporated into the credit.

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General information only. This illustrative scenario does not constitute financial, legal, tax, accounting, or investment advice. Eligibility, recourse, pricing, documentation, and legal or accounting treatment depend on the specific transaction, provider, contract, and jurisdiction.