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Reverse factoring is a traditional approach for modern era’s supply chain finance. It is a financing option led by buyer in which both parties i.e. supplier & buyer receives a short-term credit against the invoice. In the reverse factoring concept, the suppliers sell their invoices to banks or institutions of finance at some pre-determined discount rate. By selling invoices supplier can get immediate access to cash whereas using this buyer can get more time to pay the invoices. Reverse factoring can be considered as a three-way financing process where supplier, buyer & financial institution, all three are involved within the transaction.
Reverse factoring helps to optimize working capital and provides liquidity to business. The key point here is that the discount rate. Discount rate at which the invoice is settled by the financial institution is lower than buyer’s own sources of operating funds. Thus, reverse factoring is cheaper short-term finance option for buyers. Reverse factoring occurs when a financial institution such as a bank decide to pay the company's invoices to the suppliers in terms of short term credit in exchange for a discount. This is a lower-cost form of financing which helps in accelerating accounts receivable receipts for suppliers.
The buyer and its suppliers will be on board for the Reverse Factoring process or program. In most circumstances, buyer offers reverse factoring only to its most creditworthy suppliers. Following is the stepwise process of reverse factoring:
Both buyer & supplier can experience smoother processes using reverse factoring as they have to deal with financial institutions for payments. This helps to further translate in strong cooperation amongst the buyers and suppliers which creates competitive advantage.
Normally, the cost of reverse factoring is borne by the suppliers. In the event that the buyer should also request the supplier for paying on maturity and a further period of deferment, the related cost may involve the application of specific market rates proportionate to the deferment period granted.
All three parties get benefits from reverse factoring arrangement:
Connect2India provides trade credit solution that offers the benefits of reverse factoring in a more streamlined package at a lower cost. Here at Connect2India, we understand that you want to have flexibility within your sales and purchases, but you also don’t want to go through all the hurdles that may be involved in reverse factoring.
When you make sales through Connect2India, things becomes easy for both the supplier and the buyer. Our intuitive desktop and mobile interface automates and streamlines many of the processes that banks struggle through on a daily basis. We offer instant approval, and we handle every aspect of credit control to lessen the logistical burden on companies and buyers.
Features of Connect2India finance
Complete online application process makes it easier for us to process forms faster and provide same day loan approvals.
With online loan processing, business loan is disbursed within 3-5 business days of loan approval.
No need to put your valuable assets in risk, we have unsecured loan that do not require any collateral.
Our advanced algorithms determines the best rates for the type of loan you business require.
There will be no hidden costs or any other charges involved. Only processing fee of 2% is charged
Loan repayment structure can be customized depending upon how your business is growing.