Reverse Factoring
Unlocking Working Capital With Reverse Factoring
Easiest solution to pay suppliers on time
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For any business managing cash flow is a constant challenge. Long and often delayed payment cycles create financial strain, and stall growth opportunities. Reverse factoring offers an easy solution to optimise working capital and keep operations uber smooth while ensuring suppliers get paid on time.
By leveraging a TReDS (Trade Receivables Discounting System) platform, buyers can push their payment dates without negatively affecting sellers. On the other hand suppliers gain access to quick, low-cost financing.
What Is Reverse Factoring?
Reverse factoring helps businesses to pay their sellers faster by involving a third-party financier. Contrary to factoring, where sellers have to sell their unpaid invoices, reverse factoring is pitched by the buyer. This guarantees that sellers receive their payments sooner while buyers get flexible payment terms.
A TReDS platform (Trade Receivables Discounting System) plays a pivotal role in this entire process. Sellers can choose to trade approved invoices for early payments from financiers at competitive rates, making it an ideal situation for both the parties.
How Reverse Factoring Works?
Reverse Factoring Vs. Factoring
Factoring
Initiation
Initiated by the buyer
Initiated by the supplier
Financing Terms
Better terms for sellers
Higher fees and interest rates for sellers
Process
Uses a TReDS platform for seamless, digital financing
Suppliers sell invoices independently
Efficiency
Recourse is on buyer
Recourse is not on buyer but seller
The Role of TReDS Platforms in Reverse Factoring
A TReDS platform is an online marketplace which facilitates reverse factoring for businesses. Registered buyers, sellers, and financiers are on the same platforms and engage with each other seamlessly for early payments and liquidity optimisation.
As businesses evolve and expand into uncertain economic landscapes, reverse factoring provides them with the long rope of financial stability. Through a TReDS platform, companies can optimise cash flow and further strengthen supplier networks.
Frequently Asked Questions
Reverse factoring, also known as supply chain financing or buyer-led invoice discounting, is a financial solution, where a buyer facilitates early payment to suppliers through a financier. Since the buyer initiates the process, it lowers both risk and borrowing costs for suppliers.
With reverse factoring, buyers onboard and upload approved invoices. Suppliers receive early payments, while buyers maintain their original payment terms. This allows buyers to optimise cash flow without straining supplier relationships.
Buyers can optimise cash flow by extending payment terms, without affecting supplier’s liquidity. It also strengthens supplier relationships, enhances supply chain stability, and operational efficiency.
No. Invoice factoring is initiated by the supplier and depends on the supplier’s credit profile. While, Reverse factoring is initiated by the buyer and is based on the buyer’s creditworthiness, resulting in more favourable financing terms.
Large buyers (including corporates, government departments, PSUs, )MSME suppliers, and regulated financiers who are part of the DTX ecosystem can access reverse factoring on the platform.
As a dual-licensed platform under RBI and IFSCA, DTX ensures a highly secure,and compliant environment. All transactions are transparent, digitally processed, KYC-verified, and supported by standardised documentation.
To get started, buyers onboard the DTX platform and upload approved invoices. Financiers compete to fund them, and the supplier receives early payment. The buyer then repays the financier on the original due date.
Participants must be registered on the DTX platform. Buyers with approved invoices, MSMEs, and financiers are required to follow RBI guidelines and compliance protocols.
Typically, the supplier pays a nominal financing fee to access early payment. However, in some arrangements, buyers may agree to share or cover this cost, depending on commercial terms.
Reverse factoring involves third-party financing based on the buyer's creditworthiness. Dynamic discounting is a negotiation between buyer and supplier, where the buyer pays early in exchange for a discount.
