Reverse factoring – what is it?
Reverse factoring is a form of financing in which a company engages a financial institution to make an early payment to its suppliers. Unlike traditional factoring, in which the supplier uses a factor to expedite the receipt of receivables, reverse factoring is initiated by the company – the recipient of the goods or services.
Under reverse factoring, the supplier receives payment earlier, allowing it to maintain liquidity and ensure the stability of its business. The company that orders the service repays the amount to the financial institution at a later date, according to the agreed terms. This form of financing helps strengthen relationships in the supply chain, as it allows suppliers to pay their obligations on an ongoing basis, eliminating the problems associated with extended payment terms. In addition, reverse factoring allows companies to optimize cash flow management and maintain financial flexibility, which is particularly important in dynamic markets and large supplier networks.
Frequently asked questions
1 What are the benefits of reverse factoring?
Benefits include improved supplier liquidity, better payment terms and strengthened supplier relationships.
2.How does reverse factoring work?
The company submits invoices to a financial institution, which pays the suppliers before the due date, and then the company pays the financial institution on the agreed date.
