Reverse Factoring - Post-Delivery Funding Route for Paying Suppliers

Drawing on an extensive professional background in Toronto, Sheldon Jason Burnett guides Analytics Associates Group as CEO. Engineering client-driven solutions in areas such as logistics, business services, and venture capital, Sheldon J. Burnett provides pathways of financing across the entire supply chain and is knowledgeable about strategies such as reverse factoring.

Reverse factoring involves a bank or another financial institution taking an intermediary role between a company and its commodity suppliers. The financier commits to paying invoices for deliverables at an accelerated rate, and in return, receives a discount from the supplier. The benefit for suppliers is that it accelerates payments on accounts receivable, providing the cash assurance necessary to continue at current levels of production.

On the other side, the purchasing company is able to develop stronger links with core suppliers through its prompt payment while receiving assurance of a dependable, competitively priced product. Another advantage is that the interest rates the finance company charges are typically reasonable, as they are based on the paying company’s credit standing.

One limitation of reverse factoring is that it operates as a post-delivery financing mechanism. For those requiring pre-delivery funding (before the product is shipped), supplier financing may be a better option.