To learn more, take a look at our blog “ How Can Your Business Benefit from Reverse Factoring?”. Reverse factoring can look different for every business and can be utilized based on the needs of your company.Reverse factoring benefits everyone in the supply chain.The supplier has to pay a small fee for getting the early payment.Invoice factoring allows you the opportunity to get paid faster.A supplier that has more suppliers under it may decide to use reverse factoring to help a supplier in need to ensure the supply chain isn't jeopardized. The reverse factoring process doesn't always start with the manufacturer. The main benefit is the continued smooth operations of the supply chain. There are many benefits to reverse factoring. (source:BNP Paribas) Who Benefits From Reverse Factoring It's worth it to the manufacturer to resolve the supplier's issue and get the supply chain moving again. If the supplier's problem is not solved, everyone suffers. Isn't that the supplier's problem? Yes, but it also affects everyone further up in the supply chain. The supplier may be the one in a cash flow crunch and in need of a cash injection. Reverse factoring doesn't always mean that the manufacturer is the one in need of cash or working capital. For the buyer, their fee comes in the form of an interest rate. For this early payment, there is a small fee involved. The main reason the supplier agrees to financing is that they get paid much sooner. But if the supplier doesn't agree, then the buyer is out of luck for the most part. Certainly, a 50 days advance for a small fee is worth the price.īut why would a supplier agree to financing? It's the buyer who initiated reverse factoring after all. In step three, suppliers agree to finance because they are getting paid in 10 days rather than 60, for example. Let's look a little deeper at the reverse factoring process. At some later time, the buyer pays the invoices.The buyer approves invoices to be financed.Supplier invoices are sent to the bank.Suppliers deliver goods or services and invoice the debtor (buyer).The bank offers to finance the receivables of several suppliers.The buyer finds a bank or financing company for the supplier invoices.Extending terms is not something suppliers have an incentive to do. The buyer is trying to extend terms with suppliers, so the suppliers are paid later.Note that the "buyer" in the reverse factoring example below is the company that initiates the reverse factoring and buys supplier products generally, this is the manufacturer but not always. To better understand how the reverse factoring process works, let's look at an example of a reverse factoring workflow: Reverse factoring is an accounts payable solution. In doing so, the company is factoring part of the supply chain. Reverse factoring, also called supply chain financing, works in the opposite direction of invoice factoring - Instead of a company factoring customer invoices, it factors supplier invoices. Now, let's explore how reverse factoring works and provide some reverse factoring examples. The benefit of factoring is cash flow, meaning the advance received by the factoring company.
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