Why Third-Party Inventory Ownership is the New Supply Chain Finance 2.0

Global Supply Chain Finance (SCF) has experienced remarkable growth over the past decade, reaching a global transaction volume of ~$2.5 trillion in 2024 (ITFA, 2024), as companies increasingly turned to off-balance sheet financing to preserve liquidity. However, recent shifts in accounting standards now threaten to reclassify many SCF payables as debt, undermining its appeal. Simultaneously, pandemic-era stockpiling and extended lead times have led to a surge in inventory levels, prompting CFOs and treasurers to seek alternative solutions.

In this context, third-party inventory ownership solutions (TPIO), an evolved form of inventory finance, are gaining traction. As global supply chains transition from “just-in-time” to “just-in-case”, traditional SCF tools, which focus narrowly on payables and receivables, are proving insufficient. TPIO offers a compelling alternative, it enhances liquidity and frees up cash flow like SCF, but also facilitates the optimisation of Days Inventory Outstanding (DIO), strengthens supply chain resilience, and can be structured in a balance sheet efficient manner.

While SCF has essentially served as a treasury tool, TPIO is fast emerging as a more strategic instrument, bringing commercial and financial flexibility for businesses in managing their global supply chains across internal stakeholders.

This paper explores the strategic, regulatory, and operational drivers behind the rise of TPIO and its implications for corporates, financial institutions, and the future of working capital finance.

Over the past two decades, Supply Chain Finance (SCF) has become a mainstay of the corporate liquidity strategy toolkit. By enabling buyers to extend payment terms whilst allowing suppliers to receive early payment, typically via a third-party financier, SCF has helped optimise working capital without disrupting supplier relationships. Its appeal has been particularly strong in sectors with long production cycles and more complex supplier ecosystems.

However, the model is not without its constraints. Traditional SCF is inherently reactive: it is triggered only once an invoice has been issued. This leaves a significant liquidity gap during the earlier stages of the supply chain, particularly during the inventory holding period, which can span weeks or even months. For capital-intensive industries such as automotive, aerospace, and heavy manufacturing, this gap can represent a drag on both cash flow and return on assets.

Moreover, recent regulatory scrutiny has begun to erode the balance sheet advantages that once made SCF so attractive. Accounting bodies such as the IFRS Interpretations Committee have raised concerns that certain SCF arrangements may obscure a company’s true leverage, prompting auditors and rating agencies to reclassify SCF liabilities with payment terms beyond industry norms, as debt. This shift has profound implications for credit ratings and investor perception.

In short, while SCF remains a valuable tool, its structural limitations and growing regulatory headwinds have exposed the need for a more holistic approach to working capital optimisation: one that addresses the inventory phase directly.

Third-Party Inventory Ownership (TPIO) solutions have emerged as a compelling response to these challenges. Unlike SCF, which activates post-invoice, TPIO structures intervene earlier in the supply chain by transferring legal ownership of inventory to a solution provider, thereby enabling corporates to delay inventory from entering their balance sheets whilst retaining full visibility, and material security.

The benefits are multifaceted. First, TPIO unlocks liquidity at the point of inventory acquisition, rather than waiting for goods to be sold or invoiced. This accelerates the cash conversion cycle and reduces the need for additional short-term borrowing. Second, whilst the inventory is owned by a third-party trade company, and not yet recognised as an asset on the client’s balance sheet, key financial ratios such as return on assets (ROA), days inventory outstanding (DIO), and leverage can improve, often materially.

From a strategic perspective, TPIO also supports the shift from “just-in-time” to “just-in-case” inventory models as part of building resilience. By enabling companies to access more inventory closer to their manufacturing hubs, TPIO enhances supply chain resilience, a priority that has only grown in importance following the COVID-19 pandemic, geopolitical disruptions, and the reconfiguration of global trade routes.

In essence, TPIO represents a structural evolution in working capital finance. It addresses the DIO blind spot left by traditional SCF and aligns more closely with the operational realities and financial imperatives of today’s global enterprises.

The global supply chain model, once optimised for lean efficiency, has undergone a structural reorientation. The cumulative impact of the COVID-19 pandemic, geopolitical fragmentation, and persistent logistics volatility has exposed the fragility of “just-in-time” inventory strategies. In response, corporates are now prioritising increased resilience over marginal gains in efficiency.

This shift is quantifiable. Investment-grade corporates outside China are reportedly holding 31% more inventory than in 2018, equating to nearly $1 trillion in additional stock (Citi Private Bank Global Strategy Quadrant, 2024) This is not a temporary distortion but a deliberate recalibration.

This resilience comes at a cost. Higher inventory levels tie up capital, depress return on assets (ROA), and inflate days inventory outstanding (DIO). Traditional working capital tools, focused on payables and receivables, are structurally incapable of addressing this capital commitment. They activate too late in the cycle and fail to monetise the growing resource locked in stock.

Third-Party Inventory Ownership (TPIO) solutions directly address this hidden vulnerability. By transferring legal title of inventory from the supplier to a third-party trading company, TPIO enables corporates to preserve operational access and only recognise inventory at the point of acquisition. This not only improves liquidity but also enhances financial metrics, reducing leverage and improving asset turnover, without compromising supply continuity.

In a world where resilience is now a strategic-level imperative, TPIO offers a structurally aligned solution: one that supports strategic inventory buffers whilst preserving financial agility.

The institutionalisation of TPIO is well underway, with broader adoption signalling a decisive shift in how financial markets view inventory as an asset class. What was once a bespoke, asset-based lending structure is now being scaled through both bank and non-bank capital alike.

This evolution is driven by mutual benefit. For corporates, TPIO unlocks liquidity without increasing on-balance sheet liabilities. For solution providers, it offers exposure to high-quality, asset-backed flows that are structurally remote from buyer credit risk. In an environment of rising rates and tighter credit conditions, this risk profile is increasingly attractive.

Moreover, the rise of specialist non-bank providers, such as Falcon Group, has accelerated adoption. These entities operate with greater structural flexibility than traditional banks, enabling them to tailor TPIO programmes that meet both accounting requirements and operational realities. Their ability to structure transactions that delay inventory entering the buyer’s balance sheet under IFRS and US GAAP is a key differentiator.

The convergence of regulatory pressure, capital efficiency, and supply chain strategy has created fertile ground for TPIO to scale. It is no longer a fringe innovation. It is a maturing segment of the working capital ecosystem, one that is increasingly endorsed by institutional capital and embedded in the strategic playbooks of global corporates.

The accounting treatment of working capital finance is undergoing a fundamental reassessment. Historically, Supply Chain Finance (SCF) arrangements were classified as trade payables, allowing corporates to extend payment terms without inflating reported debt. However, this treatment is increasingly being challenged by standard-setters and auditors alike.

The IFRS Interpretations Committee and other regulatory bodies have raised concerns that certain SCF programmes may obscure a company’s true leverage profile. Where the economic substance of a transaction resembles borrowing, particularly when payment terms are extended beyond market norms, there is growing pressure to reclassify these liabilities as financial debt. This shift can have direct implications for key financial metrics, including net debt and interest coverage.

In contrast, Third-Party Inventory Ownership (TPIO) programmes, when properly structured, can achieve off-balance sheet treatment under both IFRS and US GAAP. By transferring legal title and economic risk to the solution provider’s designated entity, and ensuring that the buyer does not retain control or beneficial ownership, TPIO can meet the derecognition criteria required for non-recognition as an asset or liability.

This distinction is not merely technical. In an environment of heightened scrutiny from investors, auditors, and credit rating agencies, the ability to finance working capital while improving the balance sheet is strategically significant. TPIO offers a compliant, transparent, and economically sound alternative to certain SCF structures that may no longer withstand regulatory examination.

The regulatory environment for banks has tightened considerably under the Basel III and Basel IV frameworks. These regimes impose higher capital charges on exposures deemed to be illiquid, complex, or operationally intensive, criteria that third-party inventory ownership solutions often meet. As a result, many banks have curtailed their appetite for inventory-backed lending or priced it at levels that are no longer commercially viable for corporates.

This has created a structural gap, one that is increasingly being filled by non-bank financial institutions, private credit funds, and inventory management providers. These entities are not subject to the same capital adequacy constraints and can underwrite risk based on asset quality, control mechanisms, and exit visibility rather than on borrower creditworthiness alone.

TPIO sits within this intersection, delaying purchasing and allowing corporates to access liquidity through inventory management, whilst enabling solution providers to deploy capital into secured, self-liquidating exposures. For banks, the model offers a potential route to expand their portfolio of working capital solutions.

As Basel IV implementation progresses and stress testing becomes more granular, the divergence between bank and non-bank capital will likely widen. In this context, TPIO is not simply a tactical workaround, it is a structurally superior model for managing inventory in a capital-constrained world.

The transition from traditional Supply Chain Finance (SCF) to Third-Party Inventory Ownership (TPIO) marks a structural evolution in working capital strategy. The following comparison outlines the key distinctions between the two models and examines the structural advantages that position TPIO as a more comprehensive and forward-looking solution.

Leveraging a TPIO solution that front-loads liquidity, where the provider purchases and holds inventory from suppliers before it’s needed, can compress the cash conversion cycle and reduce reliance on short-term borrowing facilities. This enables on-demand access to stock without tying up working capital. For manufacturers with long production or distribution lead times, it can materially improve working capital velocity and enhance financial agility. The result is a leaner, more responsive supply chain with greater control over cash flow.

By assuming legal title and economic risk directly from the supplier to a third-party trading company, TPIO structures can achieve off-balance sheet treatment for the buyer under IFRS and US GAAP. This derecognition improves key financial ratios, such as return on assets (ROA), leverage, and days inventory outstanding (DIO), without compromising operational access to stock. In contrast, SCF liabilities are increasingly being reclassified as debt, eroding their balance sheet neutrality.

TPIO is structurally aligned with the direction of travel in accounting and regulatory policy. It reflects the economic substance of inventory ownership and avoids the ambiguity that now surrounds many SCF programmes. As scrutiny from auditors, investors, and rating agencies intensifies, TPIO offers a compliant and transparent alternative that withstands regulatory examination.

The shift from “just-in-time” to “just-in-case” inventory models has introduced a structural tension: how to hold more stock without compromising capital efficiency. Unlike SCF, which only focuses on financial flows, TPIO supports physical inventory strategies, enabling corporates to build strategic buffers, whether for geopolitical risk, supplier concentration, or demand volatility, without incurring balance sheet drag. This is particularly relevant for manufacturers with long production lead times or exposure to global logistics risk, where inventory is both a necessity and a constraint.

TPIO is not a financing tool, it is a strategic enabler. It allows treasury and procurement teams to decouple inventory decisions without upfront capital costs, enabling more agile responses to market opportunities and supply disruptions. This optionality is increasingly viewed as a competitive differentiator.

Third-Party Inventory Ownership (TPIO) is not merely a financing innovation, it is a structural lever for balance sheet transformation and operational resilience. For investment-grade corporates operating in inventory-intensive sectors, TPIO offers a capital-efficient mechanism to unlock liquidity, enhance financial ratios, and align treasury strategy with the realities of modern supply chains. Its implications span three critical dimensions:

TPIO enables the monetisation of inventory at the point of acquisition, rather than post-sale or post-invoice. This materially shortens the cash conversion cycle and reduces reliance on short-term working capital facilities. Unlike traditional SCF, which often inflates trade payables and is increasingly scrutinised as disguised debt (FASB, 2022), TPIO, when structured to meet derecognition criteria, delivers liquidity without expanding reported liabilities. For CFOs managing to net debt targets or ratings agency thresholds, this distinction is non-trivial.

By removing inventory from the balance sheet, TPIO improves key financial ratios: return on assets (ROA) increases as the denominator contracts; days inventory outstanding (DIO) declines; and leverage metrics improve due to lower asset intensity. These enhancements are not merely cosmetic, they directly influence credit ratings, investor perception, and the cost of capital. In a capital-markets-facing environment, where optics and substance must align, TPIO offers a compliant and transparent route to financial efficiency.

TPIO introduces a new degree of optionality into the treasury function. It decouples inventory decisions from capital constraints, allowing procurement and supply chain teams to act with greater agility, whether to secure volume discounts, hedge against supply disruption, or respond to market opportunities. For CFOs, this translates into a more dynamic capital allocation model, one that supports operational responsiveness without compromising financial discipline.

The structural limitations of traditional Supply Chain Finance (SCF), delayed liquidity, increasing regulatory scrutiny, and limited support for inventory-heavy operating models, have created a strategic imperative for evolution. Third-Party Inventory Ownership (TPIO) has emerged as that evolution: a capital-efficient, balance sheet-friendly, and operationally aligned solution for corporates navigating today’s complex supply chain and financial environments.

TPIO facilitates resilient stockholding strategies and supports financial metrics without compromising compliance. It aligns with the shift from “just-in-time” to “just-in-case,” and offers CFOs and Treasurers a structurally superior alternative to legacy SCF programmes increasingly under pressure from auditors, regulators, and rating agencies.

Among the providers shaping this transformation, Falcon Group stands as the market leader. With over three decades of experience in structured trade and inventory finance, Falcon has pioneered the deployment of TPIO across global manufacturing and distribution networks. Its offering combines deep sectoral expertise, robust risk management, and operational integration capabilities, that enables clients to unlock liquidity from inventory without disrupting supply chain continuity or financial transparency.

Falcon’s expertise and track record has made it the partner of choice for investment-grade corporates and their banking partners alike. In a market where capital efficiency, resilience, and regulatory alignment are non-negotiable, Falcon’s TPIO model offers a compelling blueprint for the future of working capital management.

For corporates seeking to future-proof their liquidity strategy, and for financial institutions looking to support them with innovative, asset-based structures, TPIO is no longer optional, it is foundational.

This article has been prepared solely for information purposes and the opinions expressed and set out herein are illustrative only. Please note that any content in this article is based upon Falcon’s own views and opinions and should not be relied upon by the reader as advice. Falcon shall not be liable for losses arising out of reliance on this article.