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Understanding reverse factoring

Understand how reverse factoring works and whether it's the right finance solution for your business.

Do you need reverse factoring to help improve your cash flow?

Get an online quote or call us on the freephone number below to have a chat with one of our factoring experts.

Get a quote online 0808 250 0859

What is reverse factoring?

Reverse-factoring is a financing option where a 3rd party financial provider finances the supplier on behalf of the buyer. 

Reverse-factoring is initially set up by the buyer who ensures the supplier is on board. The buyer receives the order from the supplier and approves the invoice. The supplier then sells the unpaid invoice to the financial provider at a discounted rate.

Get a no obligation quote online or call us on the number below to have a chat with one of our reverse factoring experts.

How does reverse factoring work?

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Reverse-factoring is initially set up by the buyer who ensures the supplier is on board. The buyer receives the order from the supplier and approves the invoice. 

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The supplier then sells the unpaid invoice to the financial provider at a discounted rate.

The financial provider will then advance up to 100% of the value of the invoice to the supplier immediately.

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 The buyer, who has negotiated terms with the finance provider to increase the time it gets to fulfil the invoice, then pays the financial provider the value of the invoice plus interest on its maturity.

What are the advantages of reverse factoring?

  • Low cost -  Rates are based on the credit rating of the buyer not the supplier. Everyone in the supply chain benefits with the reduction of problems associated with cash flow due to late payments.

  • Better terms and boosted cash flow - Buyers that offer reverse-factoring to suppliers may be able to negotiate better terms, benefiting from cheaper longer payment terms, improving their working capital. The buyer can therefore take advantage of discounts for cash whilst still having time to pay its invoices.

  • Ability to plan ahead - For the supplier knowing when they will be paid improves their ability to plan for the future.

  • Improved balance sheet - Reverse-factoring is an off balance sheet finance option, so it improves the balance sheet for both suppliers and buyers. Enabling access to future finance at better rates, where suppliers get access to cash faster and cheaper, thereby improving their cash flow and working capital.

  • Everyone benefits - The experience of both buyer and supplier is smoother and relations improved as the finance provider deals with payments.

What's the difference between reverse factoring and invoice financing?

Reverse Factoring

  • Reverse factoring involves a finance provider paying up to 100% of a outstanding invoice to the supplier of the goods or services that have been delivered to a buyer.
  • The buyer pays back the finance provider on maturity of the invoice plus interest.
  • It is the buyer that sets up the arrangement with the agreement of the supplier.

Invoice Financing

  • Invoice financing involves a finance provider loaning up to 90% of an outstanding invoice to the supplier of the goods or services that have been delivered to a buyer. The supplier is responsible for chasing up the invoice from the buyer and paying back the finance provider.
  • It is the supplier that sets up the arrangement and the supplier that pays the fee for the service.
  • The buyer doesn’t need to be aware of the loan and pays the invoice as normal to the company on maturity.

Why choose Novuna Business Cash Flow?

6 month trial period

A 6 month trial period so you can be sure the product is right for you, followed by a 6 month rolling contract – we don’t tie our clients in for long periods.

Digital onboarding

We are the first in the market to offer a digital onboarding process and have been leading the way with our digital capabilities allowing clients to sign up within 24 hours from the first appointment.

Client trust account

Once you become a client you will be given your own trust account, meaning you will get same day availability on your funds. You can also view all of your invoices and payments online at a time suitable to you, 24/7.

No uncleared effects

We have heavily invested in our digital capabilities. This includes the auto allocation of payments using Artificial Intelligence. Ultimately this advance in technology means that our clients access money quicker as well as saving money on interest charges due to auto allocation.

Simple pricing

We aim to make the process of Cash Flow finance as simple and straightforward as possible. Our pricing is very straightforward to understand. For a no obligation quote or an informal chat you can call our friendly team today on 0808 250 0859.

Award winning service

We offer award-winning client services and individual Relationship Managers who are on the other end of the phone or out in the field to visit you in person.

We are an award winning invoice finance company

Alternative SME Lender of the Year 2023

SME Lender of the Year 2023

Best Use of Technology 2023

Best Provider 2023

Commended SME Finance Innovation 2023

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We come highly recommended by our customers

"The communication and support has been outstanding. Providing me with all the information I needed regarding new clients coming onto our books. The system they use is so user friendly and the drawdown payments are very efficient in the fast moving world of temporary payroll."

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The factoring process has been revolutionised with our digital onboarding process

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Get in touch

Contact our friendly UK advisors on our freephone

0808 250 0859

8:45 - 17:15 - Monday to Thursday &
8:45 - 16:45 - Friday

Reverse Factoring FAQs

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.

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Is reverse factoring the same as supply chain finance?

Supply chain finance is where a supplier can receive payment on their invoices quickly and earlier than waiting for the invoices maturity date. It involves the buyer selling its invoice to a 3rd party finance provider with the agreement of the supplier. It is the same as and is sometimes called reverse factoring.

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Why is supply chain finance sometimes referred to as reverse factoring?

Supply chain finance is sometimes referred to as factoring. By referring to it as factoring it allows it to be left off the balance sheet as a debt.

As factoring involves finance that doesn’t come from equity investors or lenders and is relying on future payment from the buyer to the factor then because this is out of the company’s control it can be taken as a contingent asset.

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More factoring products from Novuna Business Cash Flow

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Spot Factoring

Spot factoring is a way for a business to access funds by selling unpaid invoices to a 3rd party, a spot factoring company, on a one off basis in order to receive payment quicker.

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Account Receivable Factoring

Account receivable factoring provides businesses with an option to finance their venture without taking out a loan. This is a type of debtor finance where SMEs sell its invoices to a third party at a discount, in order to provide an immediate cash injection. There are many reasons why a business may factor an invoice, including increasing cash flow and mitigating credit risk.

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Recourse and Non-Recourse Factoring

Resource factoring is a form of finance where a company sells its invoices to a factoring company. The factor pays the company a percentage of their cash value and then chases up payment of the invoices on behalf of the company. Non-Recourse factoring is a form of finance where a company sells its invoices to a factor and receives a percentage of the cash value from them.

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Debt Factoring

Debt factoring is a finance facility provided by a debt factoring lender to help businesses leverage their acccounts receivable enabling them to instantly inject cash into the business. The debt factoring company pays the business a percentage of the total amount charged to the client and usually takes full responsibility for collecting the payment from the buyer.

Want to learn more about how you can boost your businesses cash flow?

Our Cash Flow Resource Hub has been set up to help SME's with cash flow finance advice, tips and resources to help with their cash flow position.

We explore ways you can begin improving your cash flow situation and start getting your business on track to positive cash flow.

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