Reverse Factoring or Supply Chain Financing is when a bank or finance company commits to pay a company’s invoices to the suppliers at an accelerated rate in exchange for a discount. It is unlike traditional invoice factoring, where a supplier wants to finance his receivables. Reverse factoring is a financing solution a buying party initiates to help his supplier finance their receivables quickly. It is typically at a lower interest cost than what they normally provide.
What are the Benefits of Supply Chain Financing?
Supply Chain Finance is increasingly important with the growing need for companies to access the working capital locked up in their supply chains.
- The larger buyer typically has stronger financials vs. the smaller supplier making it easier to get funding for the supplier.
- Financing through a significant buyer lowers borrowing costs to the supplier because of the buyer’s superior credit.
- Unexpected cash flow issues are neutralized with the supplier getting immediate cash for the buyer’s order.
- Supply chain financing has fewer regulations, reporting, and burdens overall compared to traditional bank financing.
- It allows companies to have longer payment terms with certain suppliers while also allowing the buyer to pay larger suppliers early.
- There is lesser interest because the larger orders can get the payment first.
- Buyers cash in on potential discounts for paying early from the larger suppliers, on the larger orders.
- The buyer has created additional working capital, and the risk for all suppliers is lesser.
Supply Chain Financing is an increasingly popular method to provide the buyer and suppliers with superior financing rates, immediate working capital, better terms, and overall profit. PO Funding has the industry knowledge and funding experience to get funding for your situation quickly and effectively. Lowering risk and improving profits for the buyer and the entire supply chain. Give us a call, email, or fill out our secure contact form today.