What is reverse factoring?
Sometimes known as supplier finance, reverse factoring provides a mutually beneficial cash flow solution for businesses that regularly purchase goods and/or services from the same suppliers, in addition to the suppliers themselves.
Reverse factoring is therefore designed to improve cash flow across the supply chain as a whole. It involves the customer approving an invoice as soon as it is raised, enabling a factoring company to advance early payment to the supplier against the sales ledger value, minus a small fee for the service.
Because reverse factoring provides funding against qualified invoices, up to 100% of the sales ledger value is often released.
What are the benefits of reverse factoring to the buyer?
- You can preserve your business’ cash flow through reverse factoring by benefiting from often longer credit terms than requested by suppliers.
- You will still be able to pay at any time during the specified credit period, potentially benefiting from any early settlement discounts that are offered.
- It provides the opportunity to build stronger working relationships and loyalty with your suppliers, in addition to a more efficient supply chain.
What are the benefits to the supplier?
- Reverse factoring enables you to trade with larger firms which typically request longer credit periods, without compromising your cash flow.
- Suppliers can access funding immediately, reducing the time between providing a service and getting paid.
- The supplier can access even more capital against the invoice’s value than they can through other factoring solutions.
Is my business or the business I supply to suitable for reverse factoring?
This depends on your business’ individual cash flow requirements. Whilst reverse factoring has many benefits, other cash flow factoring solutions could be more advantageous to your business.
It is also important to note that reverse factoring facilities are typically only available if you transact with suppliers with whom you have an established trading history of more than six months - though exceptions are sometimes made and a specialist invoice finance broker can discuss and assist with your specific funding needs.
Call 0800 9774833 to speak to our team, or get a factoring quote to find out how reverse factoring can boost the cash flow of your business, your suppliers and your customers.
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