Reverse factoring, also known as supply chain finance or supplier finance, is a financial technology solution that mitigates the negative effects of longer payment terms to help buyers and suppliers optimize working capital. Linking buyers, suppliers, and financial organizations, reverse factoring improves cash flow, reduces supply chain risk, and provides predictable return on investment for funders.
What Are the Benefits of Reverse Factoring?
- Optimize payment terms with suppliers to improve working capital without damaging supplier relationships.
- Auto-upload all approved invoices to PrimeRevenue’s technology-enabled reverse factoring platform, SCiSupplier, providing immediate payment transparency to suppliers.
- Enable suppliers to sell approved invoices for early payment in return for a small financing fee, improving their cash flow and minimizing supply chain risk.
- Add a strategic, non-debt resource to your liquidity pool for funding strategic initiatives.
- Non-rated and sub-investment grade suppliers gain access to cheaper capital. The interest rate charged by a funder is based on the credit of the buyer – not the supplier.
- Greater payment predictability. All approved invoices are uploaded and available for early payment on PrimeRevenue’s technology-enabled reverse factoring platform, SCiSupplier.
- Weather economic turbulence. Stop waiting on large customers to pay overdue invoices. Instead, receive early payment for invoices to continue operations.
- Diversify your sources of cash. Reverse factoring offers an inexpensive, off-balance sheet way to maintain operations and fuel growth.
How Does Reverse Factoring Work?
- The supplier sends invoices to the buyer.
- The buyer approves the invoices and an ERP integration uploads the data (this includes payables and applicable payment offsets) to SCiSupplier.
- The supplier accesses SCiSupplier online anytime to see all approved invoices. If the supplier does nothing, funds will reconcile on the standard maturity date. Or, the supplier takes advantage of reverse factoring and sells receivables seamlessly to a funder through SCiSupplier in return for early payment.
- For invoices traded before maturity, 100% of the invoice, minus a small financing fee, is transferred electronically to the supplier’s bank account. Typically, the supplier is paid on the following business day. Since funds from the financial organization are advanced based on the buyer’s promise to pay on the original maturity date, financing rates are based only on the buyer’s risk – not the supplier’s. Therefore, the processing/discount fee is favorable for non-rated and sub-investment grade suppliers compared to the interest rate a supplier would pay for factoring, a loan, or other traditional financing methods.
- At maturity, the buyer pays the full invoice amount to the supplier (If the supplier did not sell the invoice) or to the respective funder on the reverse factoring program.
The PrimeRevenue team works together with you and your suppliers to implement a reverse factoring program that benefits the full value chain.