Supply chain finance

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Definition

Supply chain finance allows a large company to procure products or services from a large number of suppliers by extending its payment terms. It is based on reverse factoring.

How does reverse factoring work?

    Reverse factoring allows a large company (principal) to propose to its supplier to be paid as soon as its invoice has been approved and validated by the principal. More precisely:

    • the supplier delivers his goods and issues an invoice (1)

    • the client validates the invoice on the secure platform (2)

    • the supplier can make an assignment of his invoice, which corresponds to requesting advance payment of the invoice (3)

    • the bank, which is often a factor, pays the invoice in advance (4)

    • the bank is reimbursed by the client when the invoice is due (5).

    Reverse factoring life cycle

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    Advantages of reverse factoring

    Let's list here the main advantages of reverse factoring for the principal and his suppliers.

    For the principal

    • Build loyalty with strategic suppliers and prevent their possible default.

    • Secure the entire supply chain

    • Improve working capital requirements (WCR) by increasing supplier payment times

    • Allows to appear as a Responsible Company (CSR) by supporting its suppliers, which are generally small and medium-sized enterprises (SMEs).

    • Dematerialized solution: everything is done on a platform secured by a password for each user.

    For suppliers

    • Suppliers, even those in financial difficulty, have access to credit because the risk is not based on their rating but on that of the client.

    • They benefit from much more advantageous rates than those they could negotiate with their bank.

    • Dematerialized solution: everything is done on a platform secured by a password for each user.

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