How are suppliers paid—do lenders pay them directly?
Quick answer
Lenders sometimes pay suppliers directly, but it depends on the type of finance and the agreements in place. For asset and equipment funding the finance provider often pays the supplier; for general loans and working capital the borrower usually receives funds and pays suppliers themselves.
This page explains the common payment routes, when direct supplier payment happens, what documents are used, and what businesses should expect when arranging finance.
Overview: direct payment vs borrower-paid suppliers
Most commercial finance falls into two broad categories: asset-backed funding (where the lender may pay the seller) and unsecured or general-purpose lending (where the borrower is paid). Which party receives funds is decided by the lender’s process, the product type, and the supplier’s preferences.
Knowing the typical flows helps you manage quotes, delivery schedules and VAT treatment, and prevents delays caused by incorrect invoicing or missing documentation.
When lenders pay suppliers directly (asset & equipment finance)
With equipment finance, hire purchase or leasing the lender often pays the supplier directly on completion or delivery. This is common where the finance is arranged specifically to buy a capital asset and the funder wants the asset to go straight from vendor to end user without customer-free cash handling.
In these cases the funder will usually request a supplier invoice, delivery note and sometimes a warranty or installation certificate before releasing funds. For example, funders frequently pay dealers or manufacturers directly when arranging equipment finance via Best Business Loans’ network; see our equipment finance guide for more detail: https://bestbusinessloans.ai/loan/equipment-finance/.
When the borrower receives funds and pays suppliers (term loans & working capital)
For term loans, overdrafts or unsecured working capital the lender normally credits the business bank account. The business then pays the supplier under its usual procurement and accounting processes. This route is common when funds may be used for multiple purposes or when the lender cannot verify supplier performance in advance.
If you need supplier-specific payment protection, lenders may offer conditional disbursements, escrow arrangements or request proof of spend as part of the drawdown conditions, but the default is borrower-led payment.
Special cases: invoice finance, vendor finance, staged payments and legal conditions
Different products create different payment mechanics. In factoring the factor may collect customer payments and remit the balance to you after fees; with invoice discounting you normally collect and pay the factor later. Vendor or supplier finance packages may see the supplier subsidised by the lender via rebates or deferred payment plans.
Progress payments and solicitor/escrow handling
Large projects may require staged releases subject to milestones, retention clauses or escrow. Property transactions typically use solicitors but are outside our remit; for other commercial projects solicitors or escrow agents may handle supplier disbursements to ensure works are complete before payment.
Practical steps for businesses and how Best Business Loans helps
Before applying, confirm with potential lenders and suppliers who will be paid, what documents are required, and whether staged or direct payments will apply. Ask lenders about timing, VAT handling, deposit requirements and whether they will pay the supplier directly or disburse funds to your business account.
Best Business Loans does not lend directly; we help match your business to lenders or brokers who can carry out the payment arrangements you need. Complete a Quick Quote to get a tailored eligibility check and guidance on likely payment flows for your project.
Key takeaways
Lenders sometimes pay suppliers directly, most commonly for asset-based finance like equipment loans, leasing and hire purchase. For general-purpose loans the borrower typically receives funds and must pay suppliers themselves.
Always confirm the payment route, required paperwork, and timing before accepting an offer. If you’re unsure, start with a free Quick Quote from Best Business Loans and we’ll connect you with lenders or brokers suited to your needs.
Important: Best Business Loans acts as an introducer and does not provide credit or regulated advice. Information on this page is general and not personalised financial advice. Check eligibility, product terms and regulatory status with the lender or broker you are connected to before entering any agreement. For guidance, submit a Quick Quote or contact hello@bestbusinessloans.ai.
Ready to check your options? Submit a Quick Quote now to get matched with lenders or brokers who can confirm how suppliers will be paid for your specific project.