Towards a post-irrevocable payment undertaking era: Dynamic credit limits in supply chain finance

Supply Chain Finance (SCF) arrangements often rely on irrevocable payment undertakings to protect investors from dilution risk. However, many buyers are either unable or unwilling to provide such guarantees, which limits access to financing for many suppliers. We study a novel alternative SCF arrangement: a Dynamic Credit Limit (DCL) arrangement that operates without an irrevocable undertaking. This arrangement determines real-time funding eligibility for suppliers based on past transaction data, dilution history, supplier and buyer risk, and billing behavior. Using transaction data from The Interface Financial Group, one of the first providers to implement DCLs at scale, we compare its performance with that of invoice financing. DCL provides significantly more funding while reducing the probability and severity of loss. We examine the underlying algorithm, evaluate its empirical effectiveness, and demonstrate that this approach enables an inclusive, scalable SCF even in the absence of buyer guarantees.