Archive for May 2018

Essential Processes for the Reverse Factoring Now

Reverse factoring is also referred to as supplier or purchasing factoring – essentially involves pre-financing the liabilities of a customer to its supplier.For the customer, reverse factoring offers the advantage that it can optimize the financing of its purchases, in particular by making use of a cash discount, and at the same time make use of longer-term payment terms.

The Suppliers

For the supplier, reverse factoring means that it is remunerated at an early stage and, in this way, can meet its liabilities to its upstream suppliers from its own liquidity earlier. Reverse factoring therefore offers a company the opportunity to ensure the liquidity of its suppliers. For the factoring of receivables you will be having the best options now.

The Results

For this reason, reverse factoring is of particular importance for multi-unit supply chains (such as in the automotive industry), as the customer regularly has a vital interest in stable and reliable supplier relationships. In this way, the customer takes account of his own security of supply.

  • If the customer has additional credit financing, for example a revolving credit line with a bank syndicate for general working capital financing, reverse factoring may affect (i) the calculation of the financial covenants and (ii) the general undertakings under this Have credit agreement.
  • In loan agreements that follow the legal model of the Loan Market Association, the first starting point for reverse factoring is the definition of financial indebtedness. Financial liabilities refer, among other things, to all liabilities of or in connection with any amount received under another transaction that has the economic effect of borrowing.
  • In some cases, it is also (cumulatively or alternatively) based on the fact that this transaction is treated as a loan in accordance with the respective applicable accounting regulations. Then the balance sheet classification of the customer’s liabilities to the factor can be decisive.
  • In principle, the above general definition would also include liabilities to suppliers, since they would, on a maximum basis, take advantage of the maximum payment terms and have the economic effect of borrowing on a regular basis. Therefore, redemption is sometimes agreed to the effect that only such liabilities to suppliers are considered as financial liabilities that have a payment term of, for example, over 90 days. However, this must be expressly agreed, as the liabilities to suppliers cannot be considered as financial liabilities only.

Since reverse factoring has the consequence that the liability no longer exists vis-à-vis the supplier but towards the factor and the purpose of reverse factoring on the part of the customer is precisely also the pre-financing of its supplier liabilities (the customer meets the factor under maximum utilization of the supplier) agreed payment date), the liabilities are regular (unless there is a different contractual arrangement) financial liabilities.

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