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Finance & Payments

Reverse Factoring

Also known as: Supplier finance, Approved payables finance

Reverse factoring is a supply-chain finance arrangement where a financier pays a supplier early against invoices the buyer has approved, at rates based on the buyer's credit.

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In reverse factoring, the buyer approves supplier invoices and a financier offers to pay those invoices early, less a small discount. Because the funding is priced on the buyer's stronger credit rating, suppliers often access cheaper early payment than they could obtain alone. The buyer still pays the financier on the original due date, preserving its own working capital.

It is called reverse factoring because the buyer, not the supplier, initiates the programme. The approach improves supplier cash flow and strengthens the supply base while letting buyers keep or extend payment terms. It differs from traditional factoring, where a supplier sells its receivables independently of the buyer's involvement.

Frequently asked questions

What is reverse factoring?
Reverse factoring is a supply-chain finance arrangement in which a financier pays a supplier early against buyer-approved invoices, priced on the buyer's credit, while the buyer pays on the original due date.
How does reverse factoring differ from factoring?
Reverse factoring is initiated by the buyer and uses the buyer's credit rating, whereas traditional factoring is arranged by the supplier selling its own receivables independently.

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B2B trade financing in Malaysia

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