Reverse Factoring
Reverse factoring is a method of funding your business similar to traditional invoice factoring. Unlike regular factoring, however, reverse factoring allows businesses to receive cash advances of up to 100% of the sum of their unpaid invoices because the process is focused on working with both the business and individual “high quality” customers. This makes factoring an even more attractive options to businesses who cannot take out loans or do not want to take on further debt.
Why factor your invoices or accounts receivable? There are countless reasons, the single biggest being that your company may need cash flow, or at least to show cash flow, quickly. Factoring firms provide cash advances to businesses in return for their accounts receivable at a discount. This allows you to immediately have capital that can be used to pay your workers, your suppliers, and debts and hands the responsibility for collection of the invoices to the firm. Factoring is especially popular with those businesses who do not qualify to receive loans for poor credit standing or other common reasons.
Invoice factoring in general is a method wherein a business batches their accounts receivable and sells them to a factoring firm at a discount. This discount will usually be between 10% and 30%, depending on your circumstances, the credit worthiness of your customers, and the firm you are working with.
What differentiates reverse factoring is that this agreement allows some businesses to collect as much as 100% of the full sum of the invoices. Rather than buy batches of invoices, firms would rather work with the business and their high quality customers. High quality customers are those that have great credit standing and probably owe your business a considerable sum of money. This allows the factoring firm to be more sure that the invoice will be paid and they may charge businesses just fees and charges or a small factoring rate for this.