Reverse Factoring


Reverse Factoring is also referred as supply chain finance.

Only difference between factoring and reverse factoring is who originates the factor transaction.

If supplier initiates it by selling their accounts receivable then its factoring
If ordering party initiates with factor agent (third party) then its a reverse factoring.

Example-
American company sells tonnes of soya/corns per trade with Dhofar Cattle feed and raises commerical invoice of 1 Million USD and invoice due date is 90 days from the date of purchase.

Dhofar cattle feed (Buyer) can initiate a request with banks/financial institutions indicating fund 80% of invoice value before due date to its sellers

in this arrangement banks will fund to seller based on buyers instruction and charges nominal fees from seller

Advantages for seller-
Working capital and cash flows immediately
Reduced risk
Cash flow at less interest charges

Advantages for buyer-
Maintain good relationship with seller by offering early payment options rather than to wait until due date for their seller to workout cash

Deals can be done with better rates- Negotiable prices

Summary

Ordering party initiative
financing solution is part of invoice
payment is at due date
finance interest - percent of discount

Comments

  1. Trigital SEO7 May 2021 at 04:55

    If you are looking for Reverse Factoring Company m1xchage is the best alternative you can have!

    ReplyDelete

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