For suppliers · Explainer
What is reverse factoring, and why is it priced on my anchor’s credit rather than mine?
Your anchor sets up the program and confirms your invoices with an irrevocable undertaking to pay; you can sell that confirmed payment to a financier at a discount that reflects your anchor’s credit, and on confirmed invoices there is no recourse to you unless the invoice was not genuine, was already promised to someone else, or there was fraud.
In short
- Your anchor sets up the program and confirms your invoices with an irrevocable undertaking to pay.
- The discount reflects your anchor’s credit, not yours.
- Under the documented terms there is no recourse to you on confirmed invoices, unless the invoice was not genuine, was already promised to someone else, or there was fraud.
Your anchor starts it
Unlike the other supply-side products, you do not bring this one to a financier. Your anchor sets up the program with a financier and invites its supply base onto it. You join against the trading relationship you already have, and what the financier prices is your anchor’s confirmation, not your balance sheet.
How it moves
You deliver the goods and invoice your anchor. Your anchor confirms the invoice with an irrevocable payment undertaking: its commitment to pay that invoice on the due date. You choose whether to sell that confirmed payment to the financier. The financier pays you early, at a discount that reflects your anchor’s credit. On the due date your anchor pays the financier. The diagram below draws the same steps.
No recourse to you, with the exceptions stated
Under the documented terms, on anchor-confirmed invoices you sell the payment outright. If your anchor later fails to pay, that is the financier’s exposure and not yours, unless the invoice was not genuine, was already promised to someone else, or there was fraud.
This is true of reverse factoring on confirmed invoices. It is not true of the other two supply-side products, which are with full recourse, and under the documented terms the product is named to you before every trade. The exceptions are yours to control: invoice only what you delivered, never offer an invoice you have already assigned or pledged elsewhere, and keep the paperwork straight.
Why the price follows your anchor
The financier is buying your anchor’s confirmed promise to pay, so the discount is set on your anchor’s standing rather than yours. That is the point of the product: pricing that reflects the anchor’s credit rather than that of each business supplying it.
What it costs
A discount on the confirmed invoice, priced on your anchor’s credit. You are paid the invoice value less that discount. Under the documented terms you see every deduction and the effective annualized cost before you accept, and you can decline and wait for the full amount.
What it does not change
Your anchor keeps its payment terms and pays on the due date as before, to the financier instead of to you. Nothing about your commercial relationship is renegotiated, and whether to sell each confirmed invoice remains your choice, invoice by invoice.
How your program documents the sale of a confirmed invoice is set out in your financier’s agreement. Ask for the clause rather than a summary.
The flow, step by step
- Money moves
- A document moves
- Goods move
- 1.Anchor: sets up the program with a financier and invites its supply base onto it. (a document moves to financier.)The anchor initiates. A business joins against the trading relationship it already has.
- 2.Supplier: delivers the goods and invoices the anchor. (goods move to anchor.)
- 3.Anchor: confirms the invoice with an irrevocable payment undertaking: its commitment to pay that invoice on the due date. (a document moves to financier.)This confirmation is what the financier prices. It is the anchor’s credit, not yours.
- 4.Supplier: chooses to sell the confirmed payment to the financier. (a document moves to financier.)
- 5.Financier: pays early, at a discount that reflects the anchor’s credit. (money moves to supplier.)
- 6.Anchor: pays the financier on the due date. (money moves to financier.)
Who owes the money: The anchor.
Next in this track
How do I invoice my anchor so the invoice is approved first time?