“Either you pay faster, or I halt production.” How does reverse factoring save the supply chain and… relations with suppliers?
Spring in business is traditionally a time of acceleration and planning for growth in upcoming quarters. However, for many medium and large companies in Poland, Q2 becomes an endurance test for the supply chain. The rising operational costs of manufacturers and suppliers mean they increasingly shorten payment terms, pushing buyers against the wall. When a key contractor threatens to withhold deliveries due to a lack of quick payment, a traditional working capital loan may prove to be an insufficiently flexible solution. Let’s look at how purchase factoring can help in such a case.
Key takeaways:
- Security of deliveries: professional purchase factoring allows you to pay supplier invoices on time, as expected by the supplier, or even almost immediately after delivery, which stabilizes business relations and guarantees continuity of production – all without tying up your own cash.
- Cost optimization: thanks to the possibility of payment in a short time, the company can negotiate a discount (cash discount for quick payment) with suppliers, which often more than covers the costs of the financial service itself.
- Improvement of the balance sheet structure: unlike a traditional loan, reverse factoring is usually not treated as financial debt, so it does not burden the company’s credit capacity.
The pressure on liquidity in B2B relations is growing. In the face of payment gridlocks and delays, as many as 76% of entrepreneurs from the manufacturing sector decide to build so-called “defensive walls” by demanding prepayments or drastically shortening invoice deadlines – according to a study by Keralla Research for BIG InfoMonitor. This phenomenon is visible, for example, in the automotive industry, where overdue debt has skyrocketed recently.
For you, as a CFO or owner of a trading company, this means a certain asymmetry: your clients pay in 60 days, while the supplier demands payment in 7 days. Reverse factoring comes to the rescue in such a situation. How does this tool work to get you out of this impasse?
Reverse factoring. What does this solution entail in practice?
In the classic factoring model, you assign (transfer) the receivables arising from your own sales invoices to receive payment from clients faster. In turn, reverse factoring (also called supplier financing) works from a completely different perspective. It is a mechanism in which invoices for your purchases are assigned to us, and we pay the supplier for them on their original or shortened due date – while you settle this obligation to our account on an additionally extended deadline. Thanks to this mechanism, your supplier can receive payment earlier, and you still have time to sell and receive payments from your buyers. What is important – you become independent of suppliers’ demands regarding shorter payment terms, and you can even propose this yourself and negotiate a better price in return.
– We sometimes think of purchase factoring a bit like high-quality oil in the engine of a classic Alfa Romeo – it guarantees that no part of the supply chain, not even the smallest one, will seize up due to a lack of cash, and the machine, which is your business, can confidently speed ahead – explains Leopold Kasjaniuk, General Manager at Ifis Finance.
Why is Q2 a critical moment for supply chain financing?
The second quarter is, in many industries, from the food sector to packaging production, a period of accumulating orders and preparing for the high season. We then observe a phenomenon among suppliers called the growth gap – the order portfolio is bursting at the seams, but funds frozen in invoices mean there is a lack of liquidity and working capital to purchase raw materials and supplies for execution.
By implementing purchase factoring, trading companies help solve this paradox, simultaneously reaping a number of benefits themselves:
- You free up capital: instead of holding cash for quick transfers to suppliers, you can allocate it to marketing, employment, or investments.
- You build the status of a premium partner: when competitors delay payments, reverse factoring ensures your supplier has money in their account on time – as a result, your orders will be treated with priority.
- You gain flexibility: unlike banks, Ifis Finance does not require hard asset collateral (e.g., mortgages), and the service itself adapts to your turnover.
Purchase factoring step by step – instructions for CFOs and purchasing departments
Implementing the Supplier Financing Program at Ifis Finance is like the Italian La Dolce Vita for a company – it’s simple, transparent, and without unnecessary stress. How does it look in practice?
- Step 1: Indicating suppliers. You choose the key suppliers whose invoices you want to include in the financing.
- Step 2: Flexible verification. Our analysts examine your creditworthiness, but reverse factoring at Ifis Finance is not based on the blind, rigid scoring of algorithms. We look at the real business model and the strength of your B2B relationships.
- Step 3: Setting limits. Limits are set for individual suppliers, along with a global limit for you.
- Step 4: Concluding agreements. We conclude agreements with your suppliers and launch the cooperation.
- Step 5: Disbursement of funds. Invoices are forwarded to us, and we order their payment to your supplier so that they receive the payment on the invoice’s due date. You return the funds to us on the deadline extended by us. It’s that simple!
What benefits does reverse factoring provide for you and your contractor?
Our Supplier Financing Program, which is based on professional purchase factoring, is a textbook example of a win-win strategy. As a buyer, you extend your real payment deadline without generating tensions with key contractors. At the same time, we help you optimize cash flow and improve balance sheet indicators before quarterly reporting. You can offer your supplier a shorter payment deadline, which gives you a strong bargaining chip to negotiate discounts (early payment discount).
For your supplier, in turn, reverse factoring means the certainty of receiving payment on time and getting cash without having to “beg” for a transfer if they decide to shorten the deadline in exchange for a discount. This builds trust and minimizes their own risk of insolvency.
Italian stability, Polish business understanding – why Ifis Finance?
We are part of the Banca Ifis Group – a strong Italian institution listed on the Milan stock exchange. This means we offer the capital security of a bank but operate with the independence and flexibility of a specialized financial institution. True to our Italian roots, our philosophy is based on relationships, which is why each of our clients has a dedicated account manager who understands the specifics of the Polish market, seasonality, and industry challenges.
– The factoring we offer provides tailor-made solutions, especially in the international edition: we know the Italian payment culture, have direct access to reports and data on contractors there, and can instantly verify the credibility of your buyer. If you import components or finished products from Italy, reverse import factoring at Ifis Finance will help you build a bridge that strengthens trust between you and your Italian partner – summarizes Leopold Kasjaniuk.
Frequently Asked Questions (FAQ) about reverse factoring (purchase factoring)
Does reverse factoring worsen my creditworthiness at the bank?
No. From an accounting and analytical point of view, this solution is usually treated as a trade payable (to a supplier), rather than a classic financial liability (like a loan). Thanks to this, your credit capacity remains intact.
Do my suppliers have to agree to purchase factoring?
Yes, because the supplier directly participates in the process by being a party to the agreement, assigning invoices, and receiving payment from the factor. In practice, however, suppliers are very willing to join such programs because it means accelerating the inflow of funds to their account or receiving payment on time. They can also benefit from the transfer of insolvency risk, increasing the security of their business.
What are the costs of implementing such a tool?
Costs are fully transparent and depend, among other things, on the granted limit and the payment deferment time. Importantly, the discount negotiated with the supplier (a discount for the fact that reverse factoring guarantees them payment in a shorter time) very often entirely covers the factor’s costs. Financing then often becomes cost-neutral for the buyer and sometimes even generates additional profit.
