An increasing number of organizations are relying on their supply chains to fund operations, says Dale Rogers, On Semiconductor professor of business at Arizona State University, but what is the effect on suppliers?

In the practice known as supply chain financing, a company will use its supply chain to fund the organization. That often takes the form of parking inventory with an upstream supplier so that it doesn’t appear on the buyer’s books until the last possible moment. A company like Apple can use its suppliers to make itself look better from a financial standpoint, Rogers says. “Often it’s the best capital to fund growth in the company.”

In addition to holding off on taking title to inventory, buyers are stretching payment terms to suppliers. The customary period today is 120 days, up significantly from years past. “You’re not keeping inventory, you’re paying slowly — it’s kind of a game,” says Rogers.

Suppliers, in turn, could attempt to treat their upstream vendors in a similar fashion, but many don’t have that option. Their only other avenue of relief is through supply chain finance mechanisms such as dynamic discounting — the practice whereby they agree to a discount off the invoice in exchange for early payment.

“You take it out of your supplier’s hide,” Rogers says, “then there are mechanisms to get them healthy without you paying them quickly.”

Supply chain finance services are being provided by banks and non-bank sources alike. Entities in the latter category include pension funds and insurance companies, which act as intermediaries between the source of funds and the supplier. Recently, says Rogers, third-party logistics (3PL) providers have been getting into the act, adding supply chain financing to their menu of outsourced services.