Vendor Finance Programme for Real Estate Developers: How It Works
A vendor finance programme for real estate developers lets a lender pay the developer's suppliers early against bills the developer has approved, while the developer pays the lender on the original due date. As of November 2026, developers reporting under Ind AS must disclose such supplier finance arrangements for periods from 1 April 2025.
Dhanteras falls on 6 November and Diwali on 8 November 2026. In the week before, a developer's suppliers and contractors push hard for payment on running bills, so they can pay labour, festival bonuses and their own creditors. The developer's finance team, meanwhile, plans cash around customer collections, construction finance drawdowns and withdrawals from the RERA designated account, not around a supplier's festival calendar.
An anchor-led supplier finance programme closes that gap. The supplier is paid early on a bill the developer has already approved. The developer still pays on the agreed due date, but it pays the lender instead of the supplier.
This guide is for developer CFOs and finance heads. It explains how a programme works, who pays the cost, what the 45-day rule for small suppliers means, how the arrangement shows up in Ind AS financial statements, and how to set one up. Suppliers looking for their own facility should read our guides to vendor bill discounting for suppliers and contractor bill discounting.
What is a vendor finance programme for real estate developers?
A vendor finance programme, also called supply chain finance or reverse factoring, is a facility built around one large buyer, called the anchor. Here the anchor is the developer. A lender assesses the developer, sets a programme limit, and then funds the developer's nominated suppliers against bills the developer has certified. On the due date, the developer pays the lender.
Indian accounting standards now describe this arrangement. Under Ind AS 7, as amended by the Ministry of Corporate Affairs on 13 August 2025, supplier finance arrangements are those in which finance providers pay amounts a company owes its suppliers and the company pays them on the same date or later.
| Party | Role in the programme |
|---|---|
| Developer (anchor) | Approves bills, confirms them to the lender, pays the lender on the due date |
| Supplier or contractor | Raises bills, opts in, receives early payment less the discount charge |
| Lender | Assesses the developer, sets the programme limit, funds approved bills |
How the programme works, step by step
- Programme set-up. The lender appraises the developer: project cash flows, collections, existing borrowings and its record of paying suppliers. It sanctions a programme limit, the maximum value of supplier bills it will fund at any one time.
- Supplier onboarding. The developer nominates suppliers. Each one signs the programme documents and completes KYC with the lender.
- Bill approval. The supplier raises a bill. The developer's project and accounts teams certify it and confirm it to the lender.
- Early payment. The supplier chooses to draw. The lender pays the approved value, less any margin and the discount charge.
- Settlement. On the due date, the developer pays the lender. The funded bill is closed and the limit is released for the next bill.
Step 3 is the heart of it. A lender funding against the developer's confirmation is mainly taking a view on the developer, not on a small supplier. That is why a programme can fund a supplier that could not raise the same money on its own balance sheet.
Why developers set up a supplier finance programme
- Better supplier terms. A supplier paid in days rather than months carries less financing cost. That gives the developer room to negotiate on price and credit period.
- Fewer delays on site. Suppliers short of cash slow deliveries, and crews stop when wages are late. A funded supplier keeps the site moving through festival weeks and quarter ends.
- Cleaner compliance with the 45-day rule. Small suppliers have strong legal protection on payment timing, explained below.
- No early cash outflow. The developer's own payment date does not move earlier.
The 45-day rule and what late payment costs
Under section 15 of the MSMED Act, 2006, a buyer must pay a micro or small supplier by the date agreed in writing, and that date cannot be more than 45 days from acceptance. Where there is no written agreement, the limit is 15 days. Under section 16, a buyer that pays late owes compound interest with monthly rests at three times the bank rate notified by RBI, whatever the contract says.
RBI set the Bank Rate at 5.75% on 7 October 2026, when it raised the repo rate to 5.50%, so interest on late payments to micro and small suppliers now works out to 17.25% a year, compounded monthly.
Separately, since assessment year 2024-25, income-tax law has allowed a buyer to deduct a late payment to a micro or small supplier only in the year it is actually paid. Check how this applies under the Income-tax Act, 2025 with your tax adviser.
Worked example 1: the cost of paying a small supplier late
Illustrative example, assuming a ₹50 lakh bill from a micro supplier with a written 45-day term, paid after that date, with interest at 17.25% a year compounded monthly:
| Paid late by | Interest owed under section 16 |
|---|---|
| 1 month | ₹71,875 |
| 2 months | ₹1,44,783 |
| 3 months | ₹2,18,739 |
A programme does not change the developer's legal duty to its supplier. What it does is remove the most common cause of late payment claims: a supplier waiting for cash on a bill that is already approved. Ask your legal adviser how your programme documents treat the MSMED Act timeline.
Who pays the discount: supplier-paid or developer-paid
Two pricing models are common:
- Supplier-paid. The lender deducts the discount charge from the supplier's early payment. The developer pays nothing extra, but can often negotiate better prices because the supplier's financing cost falls.
- Developer-paid. The developer bears the discount charge, usually in exchange for a price cut or a longer credit period. The supplier receives the approved value early, less any margin.
The rate depends mainly on the developer's credit profile, the tenor and the lender. For reference, fresh bank loans to MSMEs averaged 8.81% in September 2026, before the repo hike, according to RBI data released on 30 October 2026. A supplier with a weaker balance sheet than the developer may pay more on its own working capital line.
Worked example 2: what a supplier saves
Illustrative example, assuming ₹2 crore of approved bills, a 10% margin so that ₹1.8 crore is funded, 60 days to the developer's due date, a programme discount rate of 10% a year and a supplier's own working capital cost of 13% a year:
| Item | Amount |
|---|---|
| Approved bills | ₹2,00,00,000 |
| Margin (10%) | ₹20,00,000 |
| Amount funded | ₹1,80,00,000 |
| Discount charge at 10% for 60 days | ₹2,95,890 |
| Cash to the supplier upfront | ₹1,77,04,110 |
| Cost of the same 60 days at 13% | ₹3,84,658 |
| Saving for the supplier | ₹88,767 |
In a developer-paid model, the same ₹2,95,890 is the developer's cost, about 1.48% of the bill value for 60 days in this example. Weigh it against the price or credit period the supplier offers in return.
How the programme shows up in your financial statements
For annual reporting periods beginning on or after 1 April 2025, a company reporting under Ind AS must disclose its supplier finance arrangements, under amendments to Ind AS 7 and Ind AS 107 notified by the Ministry of Corporate Affairs (G.S.R. 549(E), 13 August 2025). For a developer with a 31 March year end, that means the accounts for 2025-26 onwards.
The disclosures, given in aggregate, include:
- the terms and conditions, such as extended payment terms and any security or guarantees given;
- the carrying amount of liabilities that are part of the arrangement, and the balance sheet line items they sit in, at the start and end of the period;
- how much of that amount suppliers have already received from the finance providers;
- the range of payment due dates, compared with trade payables outside the arrangement;
- non-cash changes in those liabilities.
The amendment adds disclosure. Whether the liability stays within trade payables or is presented as a borrowing depends on the programme terms, such as how far the developer's payment date is extended. Agree the treatment with your auditor before the programme starts, because lenders and rating analysts read these notes.
The RERA designated account and settlement dates
Under section 4(2)(l)(D) of the RERA Act, 2016, 70% of the amounts realised from allottees for a project must be kept in a separate bank account and used only for the cost of construction and land. Withdrawals must be in proportion to the percentage of completion and certified by an engineer, an architect and a chartered accountant in practice.
Plan settlement dates around that withdrawal cycle. If lender settlements on construction bills will be paid from the designated account, ask your chartered accountant how those payments will be certified. Our guide to the RERA 70% escrow rule explains the account in detail.
Check your construction finance documents too. Construction loan agreements often set rules on project cash flows and the order of payments, so tell your construction finance lender before you sign a programme. Our guide to construction finance for developers covers how those facilities are structured.
Developer programme vs TReDS vs a supplier's own facility
| Factor | Developer's programme | TReDS | Supplier's own vendor bill discounting |
|---|---|---|---|
| Who sets it up | Developer with a lender | Developer and suppliers register on an RBI-authorised TReDS platform | Supplier with a lender |
| Who can be funded | Suppliers the developer nominates, MSME or not | MSME sellers only | A supplier that meets the lender's criteria |
| Main credit view | Developer | Buyer's acceptance, with multiple financiers bidding | Developer's approval plus the supplier's own profile |
| Recourse to the supplier | Set by programme terms | Without recourse to the seller | Set by facility terms |
| Developer's role | Approves, confirms, pays the lender | Accepts the invoice, pays on the due date, no set-off | Approves bills, may confirm them to the lender |
Under RBI's TReDS Directions, 2026, issued on 23 June 2026, invoices discounted on TReDS are without recourse to the MSME seller, and a buyer that accepts an invoice must pay on the due date with no set-off for quality or otherwise. TReDS also supports reverse factoring, where the buyer uploads the invoice. If most of your suppliers are MSMEs, compare both routes. Our guide to invoice discounting with and without recourse explains the difference recourse makes.
Through MoneyKarma, a supplier's own vendor bill discounting facility carries a minimum 10% margin and a tenor of up to 90 days, for suppliers with 2+ years of association with the developer, sales of ₹50 crore or more to it, and positive PAT and TNW.
How to size the programme limit
The limit should cover approved bills outstanding at any one time, not a full year of purchases.
Worked example 3: sizing the limit
Illustrative example, assuming ₹6 crore of supplier bills approved each month, an average of 60 days from approval to the developer's payment, and 90% of each bill funded:
| Item | Amount |
|---|---|
| Bills approved each month | ₹6,00,00,000 |
| Approved bills outstanding at any time (₹6 crore x 60 ÷ 30) | ₹12,00,00,000 |
| Programme limit at 90% funding | ₹10,80,00,000 |
Add headroom for peaks before Diwali and at quarter end, when more suppliers draw at once.
A set-up checklist for developer finance teams
- List approved but unpaid bills by supplier, with ageing and due dates.
- Flag micro and small suppliers from their Udyam registration, with the agreed payment term for each.
- Fix a bill approval timeline. The programme is only as fast as your certification.
- Choose supplier-paid or developer-paid pricing, or a mix by supplier category.
- Agree one payment account and a settlement calendar matched to collections and RERA withdrawals.
- Tell your construction finance lender and check any consent you need.
- Agree Ind AS presentation and disclosure with your auditor.
- Brief suppliers in writing: who can join, how to opt in and what it costs.
Common mistakes
- Slow certification. Suppliers can draw only against approved bills, so a backlog in approvals stalls the whole programme.
- Deductions after confirmation. Retention, penalties and debit notes raised after a bill is confirmed to the lender create disputes. Settle deductions before you confirm.
- Treating the limit as extra borrowing room. The developer still owes the full bill value on the due date.
- Leaving disclosure to year end. A programme the auditor first sees at year end is harder to present well.
How MoneyKarma helps
MoneyKarma is a loan distribution platform for Indian businesses and real estate developers, with 90+ lenders. Not a lender. We help developers compare supplier finance programme options from public sector banks, private banks, NBFCs and financial institutions, and help their suppliers apply for vendor bill discounting or invoice discounting. Every credit decision, limit and rate is set by the lender. Our team responds within 24 hours on average, with ₹2,500+ Cr facilitated to date. Apply here to start.
This guide is general information, not financial, legal, tax or accounting advice. Rules are as notified up to 1 November 2026, and the Bank Rate is as of 7 October 2026. Illustrative examples are not loan offers. Confirm current terms with your lender and your legal, tax or accounting adviser.