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How is reverse factoring different from factoring?

Reverse factoring and factoring are both forms of finance that involve selling invoices to a 3rd party finance provider who pays part or all of the value of the invoice. The difference between the 2 is in who organises the finance.

Reverse factoring involves the buyer of the goods or services arranging for a finance provider to pay the outstanding invoice to the supplier. The arrangement is carried out with the agreement of the supplier and the buyer pays back the finance provider the invoice amount plus interest on its maturity.

Factoring involves the supplier selling a buyers invoice to a finance provider. The finance provider pays the value of the invoice to the supplier for a fee. The finance provider then chases up payment from the buyer.