Reverse factoring could save you money and help organise your business finances more efficiently, as well as guaranteeing that your supplier gets paid. So read on to find out more and see if reverse factoring is the one thing you don’t want to be lagging behind on!
What is reverse factoring?
Reverse factoring is a finance solution for businesses that want to be efficient and gain a reputation for reliability. As the name suggests, it works in the opposite way to invoice factoring. Invoice factoring can help your business when you are waiting for a client to pay an outstanding invoice or charge to you. Reverse factoring works when you’re the one who owes the money.
When you receive an invoice for services or goods, it should state when the payment is due. This is usually 30, 60 or 90 days from the date of invoice, depending on your industry. One option is to leave payment right up to the deadline, risking the possibility of you forgetting to pay or having a cashflow shortfall nearer the time. Another option is to use reverse factoring, where you instruct your bank or finance lender to contact the vendor or supplier and ask if they want to ‘discount’ the payment, which means they are guaranteed to receive the money ahead of schedule in return for a small fee.
The fee should be agreed between you and the lender beforehand, as should the repayment terms and any interest charged.
What are the benefits for you?
Reverse factoring can help you be more organised and ensures you avoid late payments, which can incur interest and give you a poor reputation as unreliable. Also, offering your vendor prompt payment might encourage them to consider a lower price and more favourable terms than otherwise.
What are the benefits for your supplier or vendor?
The vendor is certain to receive their money – and quickly! This is great for their cash flow, particularly if they are a smaller firm reliant on bigger clients, and shows them you are a reliable customer to do future business with!
Could reverse factoring suit your business?
Reverse factoring is becoming popular in the UK, particularly with large retailers who get stock from a number of smaller, trade suppliers. But it can work for all sorts of firms in a variety of circumstances, so why not chat to Simply Factoring Brokers to find out if it’s right for you?
Are there any drawbacks to reverse factoring?
Once the vendor has agreed to discount and a payment order has been set up, you won’t be able to cancel it. This means that you are committed to paying your lender on or before the due date. Also, if any errors are made in the accounting you will still have to pay – so pay attention to the small details!
To find out more about reverse factoring or any other forms of factoring, call Simply Factoring Brokers on 0333 772 1558.