Deep Tier Financing

Over the course of the past 15 years, large buyers have implemented a variety of strategies and schemes to facilitate or increase their first-tier suppliers’ access to financing, an approach collectively known as supply chain finance (SCF). However, to address the financing needs of suppliers in tier higher than the first (i.e. ‘deep-tier’ suppliers) schemes referred to as ‘Deep Tier Financing’ (DTF) are being developed. In this article, a buyer collaborates with an SCF provider in order to allow early access to liquidity to specific suppliers across multiple tiers. Based on a partial guarantee provided by the buyer, the SCF provider finances the working capital of selected suppliers, proportionally to the contribution of those suppliers to the final product. We explore the conditions under which DTF is preferable to reverse factoring. We also explore which parties benefit most by adopting such a scheme.