In an increasingly complex market, reverse factoring is an opportunity to strengthen the relationship between finance and the real economy. This financial solution should be viewed against the backdrop of an increasingly urgent need to optimise working capital, which is not always evenly distributed among the various actors in the supply chain.
Reverse factoring is a flexible, advantageous instrument – not only for those who choose it, but also for their suppliers. Let us see how.
Reverse factoring is a financial solution that, as its name suggests, reverses the logic applied in traditional factoring. The main actor in this contract is not the small or medium-sized enterprise that typically sells its receivables to the bank, but the debtor. In fact, through reverse factoring medium-sized and large companies can ask the bank (the factor) for comprehensive assistance in managing their trade payables – even, in some cases, agreeing on the deferral of payments.
To better understand how reverse factoring works, let us take a practical example:
Bianchi is an SME pasta-maker and supplier to Rossi.
In traditional factoring, Bianchi (the seller) contacts the Bank (the factor) to sell it the trade receivables it claims from Rossi (the debtor) in return for liquidity.
In reverse factoring, Rossi instead contacts the bank to manage its supplier portfolio. As we will see, this benefits not only Rossi, but also Bianchi and the other companies in the supply chain.
Supporting supply chains and all actors involved in them is crucial for the maintenance and growth of a healthy economy, and reverse factoring can be a very important tool in supply chain finance.
A medium-to-large enterprise with a high credit rating (Rossi in our example) can collaborate with a factor (the bank) by sharing information about its suppliers, which will help to increase their creditworthiness. Thanks to the relationship established by the supply chain leader through reverse factoring, suppliers will be considered less risky and can more easily receive the liquidity they need to invest in their development.
The decision to rely on reverse factoring solutions therefore proves to be an advantage not only for the company that enters into the agreement, optimising the management of its trade payables, but also for the suppliers, which become part of a virtuous process that facilitates access to credit from the bank involved in the agreement.
