There occur situations, in which a payer wants to settle its liabilities as soon as possible, for example those towards a supplier of sub-assemblies required for production maintenance.
As it was described in the article titled ‘Who is a debtor? Why do companies avoid payments?’ – all suppliers are not equal. Some of them must receive their payment immediately – others have to wait.
Timely payments are so important that a special service facilitating them was created, called reverse factoring.
Service is to be applied by the payer, while a supplier signs a statement in which it accepts the amount to be paid. A factor immediately pays for the issued invoice and then it waits for its repayment from the customer (together with relevant commission and by deadline determined in the factoring agreement).
The service involves determination of a certain limit of payments, up to which customer’s payment may be made, which ensures uninterrupted payments. A debtor may also determine which company should receive payment as first. The limit value depends on the estimated capability to repay liabilities on part of the company applying for the service (analogously as in case of creditworthiness).
Demand for this service is a matter of individual needs. It may also be determined by general payment practices valid in a given trade (for instance, in the pharmaceutical sector, where payments are made very quickly). The use of the said service may have another objective: to get more attractive prices from selected suppliers.
As deferring payment deadline may increase attractiveness of the offer for the product, a commitment to make immediate payment of the debt may be worth decreasing the price.
Published on: 14 November 2016