Factoring and invoice discounting

Supplier finance - or 'reverse factoring' - is used to provide low-cost finance to both a business and its suppliers, as part of a flexible settlement system.

It works by providing early payment to a supplier on an approved invoice - either by a bank or a factoring company - which is then repaid to the bank or factoring company by the business.

Once the buyer approves the invoice, the payment - less a fee - is made immediately (and ahead of terms) by the financier.

As a supplier, this allows quick payment of invoices, and a low cost, low risk method of obtaining finance. However, although you will be paid the invoice ahead of terms, a fee will be payable, which will be taken off the invoice value.

As a buyer, using supplier finance can allow you to support your suppliers and so maintain stability in your supply chain. However, it is generally more suited to large retailers with several suppliers who need paying quickly.