Reverse Factoring Agreements

Reverse factoring is a financing solution that allows buyers and suppliers to access the working capital they need for their day-to-day operations. Concepts such as supply chain finance, Supplier Finance and Supply Chain Funding can also be found in the research. In general, these are only slightly different ways of referring to inverted factoring. The financing of the invoice is similar to retrofactring, but it is the buyer who requires financing from the lender or bank. Reverse factoring can be an effective way to promote long-term trusting relationships between companies and their suppliers. By using a financial services provider to free up working capital on both sides, it gives providers the freedom to choose the speed at which they are paid, while allowing buyers longer to bill. The very concept of reverse factoring is not so original. It was the automakers who started it. In the 1980s, Fiat, in particular, used this type of financing procedure for its suppliers to obtain a better margin.

The principle then extended to retail because it represents interest in a sector where late payments are at the centre of any negotiation. Reverse factoring may even be preferable to suppliers, who can often get lower interest rates when they follow this type of invoice financing. We will explain all the details while continuing. With factoring, suppliers sell their receivables to a third party known as a factor, usually with a discount. In this way, the supplier can be paid faster and the postman can make a profit. They do this by collecting the receivables at the customer`s full price. All three parties to the agreement have advantages. However, banks generally accept that factoring operations are only cancelled if the customer is a large business such as a business. Banks see these brands as better creditworthiness, which reduces credit risk. The still rare method of reverse factoring resembles factoring in that it involves three players: the customer, the supplier and the postman. Like basic factoring, the objective of the process is to finance the supplier`s claims by a financier (the postman) so that the supplier can immediately cash in the money for what he has sold (less an interest than the factor deducted to finance the advance of the money) [citation required].

Reverse factoring allows all suppliers to be collected in a single funder and thus pay a company instead of a large number, making it easier to manage the bill. The relationship with suppliers benefiting from reverse factoring will be improved as they receive better funding and delays in payment will be reduced; The customer in turn receives some extra money, which is reversed by the postman, and pays his bills until the due date. Providing suppliers with such benefits can be a powerful lever in negotiations and also ensure a more sustainable relationship with suppliers. In addition, it ensures that suppliers can find adjacent financing in the event of a cash flow problem: reverse factoring ensures that suppliers are still in business and reliable.