Glossary

Reverse factoring

 

Reverse factoring is a financial management mechanism enabling a financial enterprise to make immediate payment in favour of its contractors and suppliers.

So, how does reverse factoring actually work?

First, the company concerned receives its goods or services and then is served an invoice from the supplier or contractor. That company will then forward the incoming invoice to a factoring company that finances the whole amount of the invoice as soon as possible. From then it is up to the company concerned to settle the amount in favour of the factoring company, and this within the time limits set in the initial invoice as presented by the contractor/supplier.

What, then, is the difference between conventional factoring and reverse factoring?

Unlike conventional factoring, reverse factoring is a client-driven rather than a supplier-driven mechanism. What is more, the financier, the factoring company, bases its payment risk on the client’s potential solvency instead of on the supplier’s or on the contractor’s.

Updated 05/12/2018

Definitions provided under this section refer to the Belgian situation; unless specified otherwise. The texts are meant to summarize concepts in daily language and should not be considered as comprehensive or definite. We welcome suggestions for modifications or additions at glossary@tcm.be.