2 min read
Definition
Reverse factoring is another name for supply chain finance — an arrangement initiated by the buyer, rather than the supplier, in which a financier pays suppliers early against approved invoices and the buyer settles with the financier later.
In plain terms
In ordinary factoring the supplier finances its own invoices; in reverse factoring the buyer sets up the facility so its suppliers can be paid early at a rate based on the buyer's stronger credit. The direction of initiation is what makes it 'reverse'.
Why it matters
Reverse factoring benefits both a buyer wanting longer terms and suppliers wanting faster cash. See supply chain finance.
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