Unlike traditional factoring, where a supplier wants to finance his/her receivables, Reverse Factoring is a financing solution initiated by the ordering party (buyer) in order to help his/her suppliers to finance their receivables more easily and at a lower interest rate than what they would normally be offered.
The Reverse Factoring method is similar to the Factoring (Factoring in normal mode or traditional Factoring) as it involves three actors:
Reverse Factoring is a financial solution in which the invoices of suppliers duly accepted by the client (buyer) are factored. In the case of Reverse Factoring, the client is the buyer and the factoring agreement is between the buyer and the factor. In Reverse Factoring since funds are released to and in the name of the suppliers after the buyer (client) duly accepts the invoices, the performance risks of the suppliers are obviated and the only risk is the creditworthiness of the buyer.