Supply chain finance (SCF) is one of those innovations that does more work than noise. But that’s part of its problem. It was built to support small and medium-sized enterprises (SMEs) by extending finance on the back of the commercial relationships they have with larger anchor buyers, rather than on collateral that they often do not have.
SCF has proved successful in achieving its purpose. In October 2024, multilateral development banks and the WTO issued a joint statement committing to scaling financial support for supply chain finance. They recognized that inclusion requires instruments that see SMEs through the lens of the supply chains they power.
Key definitions
Source: Global Supply Chain Finance Forum (GSCFF)
| Supply chain finance (SCF) | The use of financing and risk-mitigation practices to optimise the management of working capital and liquidity in supply chain transactions. SCF is typically applied to open account trade, triggered by supply chain events, and requires visibility of trade flows, often enabled by a technology platform. |
| Payables finance | A buyer-led programme in which sellers in the buyer’s supply chain can access finance by selling their receivables (outstanding invoices) before the due date. Financing costs are usually aligned with the buyer’s credit risk. |
| Pre-shipment finance | A loan provided to a seller to fund the sourcing, manufacture, or conversion of raw or semi-finished goods into finished goods for delivery. A purchase order, letter of credit, or similar instrument from the buyer is often required to motivate the finance. |
| Post-shipment finance | A generic expression denoting all the SCF techniques that are employed once shipment has occurred. It will typically include all forms of receivables finance, and also include the use of inventory finance. |
| Deep-tier supply chain finance (SCF) | An extension of payables finance that channels financing beyond a buyer’s immediate (first-tier) suppliers to second- and third-tier firms further down the chain. |
Note: DTSCF is not formally defined by the GSCFF; this definition reflects current usage in industry and multilateral development bank discussions.
And yet, even after more than fifteen years in the market, supply chain finance remains little known in many emerging economies.
Where it is known—especially among larger global banks—it has been developed primarily in payables finance, which works by using the buyer’s credit standing to price the credit risk of the receivables owned by the suppliers, allowing them to monetise those receivables. This has generated real benefits for first-tier suppliers and proved resilient through economic cycles.
We should continue to scale these programs, especially because there is ample unmet demand and scope for better onboarding and standardization. But what we really need to do is go deeper. In this case, quite literally deeper down the supply chain.
The further you move from that first tier in the chain, the smaller the firms tend to become and the thinner their balance sheets get. And these are precisely the kind of suppliers that many SCF programs do not see, even though they are key to a number of social outcomes and maintaining supply chain capacity when markets turn volatile.
If we want supply chain finance to fulfil its promise, we need to complement existing post-shipment payables models with pre-shipment solutions for working capital, and deep-tier approaches that extend finance further down the chain.
While traditional supply chain finance models can go deeper into the supply chain, deep-tier supply chain finance (DTSCF) holds significant potential to close financing gaps at the smaller end of the market. DTSCF extends the benefit of the anchor buyer’s credit beyond its immediate suppliers. If a buyer’s approved obligation can support early payment to its first-tier supplier, the same commercial assurance can, with the right data and legal infrastructure, support early payment to the second or third tier that supplies the first tier at a pricing that reflects the credit exposure of the anchor buyer, which is the entity ultimately responsible for the payment. That is how you could move capital to where it is most constrained.
Much of the practical experimentation has been pioneered in the People’s Republic of China, where platforms—supported by data standards and irrevocable payment undertakings—have shown that visibility into underlying obligations can price risk for suppliers that would otherwise be invisible to finance.
We have tried to codify what works and what gets in the way. In our Unlocking the Potential of Deep-Tier Supply Chain Finance paper, prepared with BAFT, we outlined key considerations for developing models that could work across borders. The industry was struggling to structure arrangements that would be both legally sound and operationally viable internationally, so the paper aimed to provide guidance on verifying deeper-tier obligations.
The priority, of course, is expanding access to finance for smaller firms across the supply chain. Within that, pre-shipment solutions deserve particular focus because they bring financing forward in production cycles—by, for example, advancing cash against verified purchase orders—giving smaller firms the working capital they need to grow and to participate more fully in global value chains. And by enabling smaller suppliers in new markets to link into established production networks, it directly supports trade diversification—the shift from over-concentration in a handful of geographies to a broader, more resilient set of supply partners.
This is where institutions like the Asian Development Bank (ADB) are stepping in. Through its Trade and Supply Chain Finance Program, ADB is piloting new approaches that push finance further down supply chains and into new markets. The goal is not only to close the persistent global trade finance gap but also to actively promote diversification so that supply chains are less dependent on a narrow set of suppliers and more inclusive of SMEs in frontier economies. By backing early-stage pilots, convening industry standards, and partnering with local banks, ADB is working to make deep-tier models commercially viable and scalable across borders.
This requires several things that are perhaps easier said than done—some of them broader than deep-tier finance itself. For example, we need to find data standards that we can all agree on and devise risk-sharing structures that recognize the cumulative benefit to the entire chain when an upstream bottleneck is cleared. This is precisely where development finance can accelerate progress by convening standards and helping local banks build capability.
Most important is making these models work across borders, because supply chains are global, even though the law is not. That will require leadership from both banks and corporates. Corporates need to open up their supply networks to demonstrate the business case for resilience and inclusion; banks need to provide the structuring expertise and risk appetite to turn that into a viable financial product. The first cross-border pilot will be experimental and slow to scale, but it will show what needs to be fixed and, more importantly, what is possible.
Trade has always advanced in this way. Bills of exchange, letters of credit, and the standards we now take for granted earned their place by being used, measured, improved, and trusted. Deep-tier supply chain finance, extended into pre-shipment and carried across borders, will do the same. The first transaction will teach us what the second should change, and each step will make finance more accessible to the firms that keep supply chains moving.
The journey of a thousand miles still begins with one step. It is important to take that step now.
ADB’s Trade and Supply Chain Finance Program (TSCFP)
