Factoring and
Reverse Factoring

A comprehensive guide for modern businesses. improved cash flow, optimized working capital, and supply chain stability start here.

What is Factoring?

Factoring is a financial tool where a business sells its accounts receivable (invoices) to a third-party financial institution, known as a factor, at a discount. This provides immediate working capital rather than waiting 30 to 90 days for customer payment.

Immediate Liquidity

Convert up to 90% of your invoice value into cash within 24-48 hours.

Balance Sheet Growth

Not a loan, so it doesn't add liability to your balance sheet, improving financial ratios.

Risk Mitigation

Credit protection options available to safeguard against bad debts.

Seller - Factoring Explained

Why Sellers choose Factoring?

For a Seller, Factoring is primarily a tool for liquidity. When you have money tied up in unpaid invoices, your ability to fulfill new orders, pay wages, or invest in growth is hampered. Factoring bridges this gap.

  • Forecast Accurately: Know exactly when cash comes in.
  • Negotiate Better Terms: Cash in hand allows you to negotiate early-payment discounts with your own suppliers.
  • Focus on Core Business: Spend less time chasing collections and more time on sales.
Industry Use Case: Textile Manufacturer

Scenario: A textile exporter in Surat receives a ₹50 Lakh order from a US buyer with 90-day payment terms. They need cash to buy raw cotton and pay weavers immediately.

Solution: The seller uploads the invoice to DTX. A financier factors it, providing ₹45 Lakh (90%) immediately. The remaining amount (minus fees) is paid when the US buyer settles the bill.

Result: Seamless production cycle without taking a bank loan.

Buyer - Reverse Factoring Explained

Why Buyers initiate Reverse Factoring?

Buyer - Reverse Factoring (or Supply Chain Finance) is initiated by the buyer to help their suppliers. It allows buyers to extend their own payment terms (e.g., from 30 to 60 days) while ensuring suppliers get paid early by a financier.

  • Stabilize Supply Chain: Ensure critical suppliers have the cash to keep delivering.
  • Optimize Working Capital: Hold onto cash longer without hurting vendor relationships.
  • Reduce Cost of Goods: Suppliers can offer better pricing when they are paid instantly.
Industry Use Case: Automotive OEM

Scenario: A large car manufacturer buys components from 500+ MSME vendors. They want to extend payment terms to 60 days to manage their own cash flow, but their vendors need cash weekly.

Solution: The OEM sets up a Reverse Factoring program on DTX. Vendors can opt to get paid on Day 5 by a bank (based on the OEM's strong credit rating) at a very low interest rate. The OEM pays the bank on Day 60.

Result: Win-win. Buyer keeps cash longer; Supplier gets cheap, instant capital.

At a Glance Comparison

Feature Seller Factoring Buyer Reverse Factoring
Initiator The Supplier (Seller) The Buyer (Corporate)
Primary Goal Immediate Cash / Liquidity Supply Chain Stability / Payment Term Extension
Interest Cost Usually borne by Seller Usually borne by Seller (but at lower rates due to Buyer's rating)
Credit Basis Seller's portfolio quality Buyer's strong credit rating

Ready to optimize your working capital?

Whether you are a Buyer looking to support suppliers or a Seller needing cash flow, DTX has the solution.

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