GLOSSARY
Reverse Factoring
Buyer-led supply chain finance: the buyer approves an invoice, a third-party funder pays the supplier early at the buyer's credit rate, and the buyer settles with the funder at maturity. Also called approved payables finance.
In reverse factoring, the buyer (not the supplier) initiates the financing relationship. After the buyer approves an invoice, the supplier can choose to be paid early by the buyer's funding partner — a bank or fintech — at a discount priced off the buyer's credit, not the supplier's. The buyer pays the funder the full invoice amount on the original due date.
Why it matters
It's the single most efficient SCF structure for highly-rated buyers and small suppliers: the supplier gets cheap, fast cash; the buyer keeps DPO; the funder takes only investment-grade buyer risk. Mis-disclosed reverse factoring is also why audit standards (FASB, IFRS) now require explicit disclosure — IFRS Disclosure Initiative (Supplier Finance Arrangements) takes effect 2024.
Related terms
- Approved Payables Finance
- Supply Chain Finance
- Dynamic Discounting