IN 2015 Kiddyum, a small company from Manchester that provides frozen ready-meals for children, won a contract from Sainsbury’s, a big British supermarket chain. Jayne Hynes, the founder, was delighted. But sudden success might have choked Kiddyum’s cashflow. Sainsbury’s pays its suppliers in 60 days; Ms Hynes must pay hers in only 30.

In fact Kiddyum gets its cash within a few days. Once approved by Sainsbury’s, its invoices are loaded onto the supermarket’s supply-chain finance platform, run by PrimeRevenue, an American company. The Royal Bank of Scotland (RBS) picks up the bills, paying Kiddyum early. Kiddyum pays a fee which, Ms Hynes says, is a small fraction of the cost of a normal loan. Sainsbury’s pays RBS when the invoice falls due.

Suppliers, of course, have always needed finance for the gap between production and payment. Traditionally, they could borrow on their own account, or sell their receivables—unpaid invoices—at a discount to businesses known as factors. Modern supply-chain finance, now some 25-years-old, also lets suppliers piggyback on the creditworthiness—and lower borrowing costs—of big corporate customers. Cash replaces receivables on their balance-sheets. Buyers can lengthen payment terms (from 60 to 90 days, say), knowing suppliers are less likely to fail for want of cash. Banks acquire good-quality assets.

Definitions of supply-chain finance abound and its scale is hard to pin down. But it is agreed that it is growing fast. BCR Publishing, which reports on the industry annually, estimates that at the end of 2014 banks and factoring operations had €40bn-50bn ($48bn-60bn) of “funds in use”. Thomas Olsen of Bain, a consulting firm, reckons (on a broader definition) that the market is expanding by 15-25% a year in the Americas and by 30-50% in Asia, with food and retailing among the most active industries. Naveed Sultan, who heads Citigroup’s trade-finance and treasury divisions, says supply-chain finance is the fastest-growing area of his trade business.

Unmet demand looks enormous. Even domestic supply chains are extensive. A new study by Mercedes Delgado of MIT’s Sloan School and Karen Mills of Harvard Business School finds that American firms supplying other firms employ 44m people. Of those, employers of 26.8m are involved in international trade. So far financing programmes have largely focused on big corporations and their first-tier suppliers. Among the obstacles to growth are know-your-customer and anti-money-laundering rules. The Asian Development Bank estimates the annual global “finance gap” in trade finance, a related field, at $1.5trn. Anand Pande, head of supply-chain finance at iGTB, which provides technology to banks, calls supply-chain finance “a land of unrealised promise”.

That is true for both banks and borrowers. Eric Li of Coalition, a research firm, forecasts that this year large banks’ revenues from programmes instigated by big buyers will be $2.8bn, 28% more than in 2010. If supplier-led finance is included, growth has been just 18%, far less than for lending volumes. Margins have been squeezed. The market is fragmented, Mr Li notes. After the financial crisis, many banks cut back their foreign operations.

Only connect

They also face competition. Technology firms are pushing into supply chains. Online lenders have made less impact than third-party platforms that match buyers and suppliers to sources of finance. PrimeRevenue, for instance, connects 70 lenders, including 50-odd banks, to 25,000 suppliers with $7bn-worth of invoices a month. There is also space for specialists. Innervation Finance, based in New York, manages programmes for buyers offering finance to “diverse” suppliers (eg, run by people from ethnic minorities, women, veterans, the disabled or gay people) in banking, manufacturing and pharmaceuticals. Mark Ferguson, the chief executive, says the cost of capital for such firms may be two or three times that of other small businesses.

More banks are setting up programmes. Bank of Baroda, a public-sector bank that is India’s fifth-biggest by assets, began only a few months ago. Litesh Majethia, who runs the supply-chain business, admits that rival banks are already established. But with small and medium-sized Indian firms facing a funding gap of $400bn, he says, there is plenty of room; and a spanking new digitised system is a plus.

Banks are not, however, being overthrown by technological upstarts—as, say, high-street retailers have been by Amazon. Symbiosis is the rule. Two big banks, HSBC and Santander, have allied with Tradeshift, an invoicing, finance and procurement network that connects over 1.5m buyers and suppliers worldwide. HSBC has also joined forces with GT Nexus, a global supply-chain management platform. Banks can tap into a new pool of customers; companies in the tech firms’ networks can find finance more easily. Smaller local banks, however, may lose out as the market expands, and suppliers spurn them to borrow more cheaply from larger lenders.

Technology is opening up more possibilities. C2FO, another financial-technology firm, matches suppliers’ requests for payment at a date and interest rate of their choosing, with buyers willing to lend. Typical supply-chain finance, says Sandy Kemper, C2FO’s boss, is far less flexible. His platform is available to smaller suppliers. Back-to-back deals along the chain are even allowing third- and fourth-tier suppliers to join in. No bank is involved, though the firm has recently teamed up with Citigroup. Citi can lend to more companies; C2FO gains access to the giant’s clients.

More is in the pipeline: banks are exploring, for example, how blockchain technology might align the flow of data and money more closely with the flow of goods. Bain’s Mr Olsen sees several business models emerging, some led by single banks, some by groups of them, and others by platforms, big companies and e-commerce firms such as Amazon and Alibaba. Not every bank will win. The smaller fry in the world’s supply chains just might.