What is Reverse Factoring?
If you’re considering invoice discounting and factoring for your company, you might find yourself wondering exactly what’s involved and what the difference is between the two. What about reverse factoring? With so much jargon flying around, we’re here to shed some light on the situation and explain the benefits of each option for your business.
What is Invoice Factoring?
Invoice factoring is a low-risk way for your company to borrow money against your unpaid customer invoices. Put simply, you choose a funder (ideally one with experience in your industry), who then agrees to pay you up to 90% of the value of your unpaid invoices, usually within 24 hours. They then chase the customer for payment when it becomes due and release any remaining funds to you upon payment, minus a small fee for their services.
This is a great way to ensure your cashflow is stable so that you can meet your commitments and grow your business, and you’ll never borrow more than you can afford.
What is Invoice Discounting?
You might be wondering what the difference is between invoice factoring and invoice discounting. With invoice factoring, your funder takes the role of Accounts Receivable for your company. This means they will chase customers for payment, collect payment and pay the balance to you, minus their fees. This may not be suitable for your needs if you want to maintain control of your valuable customer relationships.
If you’d rather chase customers for payment yourself, then invoice discounting is likely the best option for you. This way you’ll benefit from all the features invoice factoring has to offer but stay in control of your relationships with your customers.
So What’s Reverse Factoring All About?
If you’ve heard talk of reverse factoring, you may be feeling even more confused. What exactly is it, and what benefits can it offer your business? The main difference between reverse factoring and invoice discounting and factoring is that reverse factoring is initiated by the end customer. Also known as supply chain financing or supplier finance, larger companies frequently use reverse factoring for their smaller suppliers.
The supplier then receives funding secured against their unpaid invoices issued to the buyer. In this way, the larger company (the buyer) is protecting smaller companies in its supply chain, to ensure they receive predictable payments. Not only does this help the suppliers with their cashflow, it also means that the buyer is likely to receive more efficient service, as late deliveries and sub-standard products (often attributed to lack of cashflow) become a thing of the past.
Which is the Best Choice for Your Company?
It can be tough deciding whether to opt for invoice discounting or factoring, or whether reverse factoring is a service you should be offering to your suppliers. That’s why the team at Simply Factoring Brokers are here – to answer any questions you have about factoring of any kind. We can help you choose the best option for your company. We work with a range of funders across almost every industry you can think of and have long-term relationships that mean we can negotiate a great rate for you.
Whether you’re in haulage, construction or recruitment – your company could benefit from our service. We’re sure to match you with a funder that’s experienced in your sector. To find out more about invoice discounting and factoring or to ask us your questions about reverse factoring, just pick up the phone and call us today on 0330 134 2826.
If you prefer, you can email us at firstname.lastname@example.org and we’ll get back to you with some more information.
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