What is Reverse Factoring?

What is Reverse Factoring?

What is factoring and invoice discounting?

Invoice finance is business finance product that involves a business selling its unpaid invoices to a bank. The bank retains control of the debt-collection process, in return for the bank providing facts access to funds.

Reverse factoring explained

  • Reverse factoring is a method that would enable suppliers to be paid promptly in return for a fee.
  • Reverse factoring is often done between large retailers and banks.
  • Reverse factoring has been established due to the length of time large retailers take to pay their suppliers.
  • Reverse factoring involves a large retailers agreeing to pay a bank the money it owes to its trade creditors and in return the bank would pay suppliers the money owed to them immediately, rather than in the 30, 60 or 90 days required by the retailer.
  • Banks would charge suppliers about 1.5pc over the Bank of England base rate for suppliers to large retailer to be included in a reverse factoring arrangement.

Why has reverse factoring began in the UK

  • Large retailers have ‘David and Goliath’ relationships and can dictate their preferred payment terms.
  • Suppliers don’t want to wait longer to be paid.
  • Suppliers are being held ‘over a barrel’ by large retailers

Advantages of reverse factoring

  • Reverse factoring could provide a financial lifeline
  • The small supplier can get payment for invoices quicker avoiding insolvencies.
  • Reverse factoring would be less expensive that traditional factoring arrangements

Disadvanges of reverse factoring

Trade suppliers end up paying for the reverse factoring service.

Call 0800 597 4757 today to learn more about reverse factoring in the UK.

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