The supplier payment system, also known as ‘Confirming’ (a registered trademark of Santander Factoring y Confirming, SA, EFC) was conceived in Spain in the early 1990s as a financial service which could facilitate all aspects of managing payments to a company’s suppliers.

This system was designed to provide a real added value to business management and a financial alternative for companies and their suppliers. It is used due to the intermediation of an entity (a bank or financial institution) which, at the request of the company, assumes the management of its payments to suppliers.

To perform this financial service we have to begin with an initial direct payment-collection relationship between the buyer (Client) and the vendor (Supplier), and of course, there must be an ongoing commercial relationship between them. The monetary flow from this transaction will coincide simultaneously, i.e., the amount of the invoice to be paid or the payment by the buyer will be charged at the same time as the funds are received by the vendor. Based on this initial relationship, the supplier payment system offers various possibilities for making these payments more flexible:

• Regarding the Client (buyer):
  • They can delay the charge on their account for the invoice payments: credit.
  • They can charge their account in advance for the invoice payments: placements of cash surpluses.
• Regarding the Supplier (vendor):
  • They can receive an advance on their receivables: credit.

This means the date the supplier receives the payment for the sale does not necessarily have to coincide with the date of the funds being drawn on the client’s account. The intermediary entity negotiates the final maturity of each invoice separately with each party, client and supplier, adjusting interest rates appropriately.

This financial service offers a set of advantages for clients and for suppliers:

• Advantages for clients: from a management perspective, clients reduce the workload of their supplier payment department. After signing the contract with the financial intermediary, the client starts sending payment orders/invoices in batches. On each maturity date of the batches sent to the bank, funds will be drawn on the client’s account (according to their instructions) with no need to pay individual supplier invoices. From a financial point of view, we have already commented that they have the option of delaying payment to the intermediary for the invoices without inconveniencing the supplier (the supplier’s invoice maturity date is not affected) or early payment to the intermediary (placements of cash surpluses) without bringing forward the supplier’s invoice maturity date (avoiding possible ill-effects of paying before the stipulated supplier payment dates).
• Advantages for suppliers: Suppliers get flexible, fast and secure funding, without consuming bank risk: advances on payments to suppliers can be made without risk studies and are not counted as consumed commercial risk. Also, the process for requesting an advance on invoices is quick and easy, and can be done through the bank’s website (for most banks). If the bank does not have a website, the request can be faxed, using the format established by each intermediary. The bank and the supplier can even sign an agreement or contract for an ongoing advance, avoiding having to send documentation each time the client assigns invoices to be paid to them. This means the advance can be automatic, with lower costs to the supplier.

In addition to the above, another advantage worth noting is that when an advance has been paid, the client cannot annul the invoice the supplier has drawn the advance on, even in the case, for example, of a commercial dispute, assuring the payment of all invoices that advances have been issued on. Of course, the intermediary or bank will charge interest and/or fees for paying advances to the supplier. Finally, there is a general division in supplier payment services from the client’s point of view:

• Simple payment system: in which the client sends a payment order and funds are drawn from their account in line with the maturity dates of the payment orders, with no difference between the dates the payments to suppliers and the withdrawals from the client mature.
• Payment system with Investment: in which the client has the option of paying the invoice amount to the bank or intermediary in advance, and receiving a pre-established interest. This means the client effectively has the option of “investing” a cash surplus without resorting to the market. The amount which can be invested can only be calculated taking into account the part credited to their suppliers.
• Payment system with Credit: in which the client can request a deferral on batch payments to the bank or intermediary. The bank will charge the client interest at a rate previously agreed in the contract.

Given the above, it is easy to understand why this payment system has spread rapidly through the Spanish financial system, and is now available in nearly 100% of banks, as well as the different Credit Institutions which offer it to their clients.