Reverse factoring (affacturage inversé) is a practical financing solution for businesses and professionals that would like to pay their suppliers early without impacting cash flow. When optimal cash flow management and strong commercial relationships are priorities, this type of financing is strategically important.

This article defines reverse factoring, how it works in France, its advantages and disadvantages, and how to effectively use it as part of your business's financial strategy.

What’s in this article?

• What is reverse factoring?
  
• How reverse factoring works
  
• Why use reverse factoring?
  
• Who is the target for reverse factoring?
  
• What institutions offer reverse factoring in France?
  
• Advantages of reverse factoring
  
• Disadvantages of reverse factoring
  
• Costs of reverse factoring
  
• How Stripe Capital can help you
  

What is reverse factoring?

Reverse factoring is a short-term option for financing your business. It enables a company to pay supplier invoices before their due dates without tapping its cash flow, using a financial institution that pays suppliers within 24 to 48 hours. The business then repays the financial institution by the original invoice due dates.

Reverse factoring is a financing agreement involving three parties:

• Originating business (customer): In reverse factoring, it’s the originating business that proposes advance payment of invoices to its suppliers through an intermediary financial institution that serves as a factor.
  
• Supplier: A company that has sold goods or services to the business and has entered into a debt assignment agreement with the factor to receive early payment for its receivable balance.
  
• Factoring financial institution (or factor): A credit institution authorized by the Bank of France—most often a bank or factoring company—that makes cash advances and pays the originating business’s debts to suppliers before being reimbursed by the business.
  

What is the difference between classic factoring and reverse factoring?

Factoring and reverse factoring are financing transactions based on the early settlement of supplier invoices using a third-party factor as intermediary. Traditional factoring is initiated by the supplier, but reverse factoring is initiated by the business (customer).

In addition, the relationship between the supplier, business, and factor is closer in reverse factoring to ensure that the transaction is well executed. In traditional factoring, the customer company does not actively participate in the process and simply pays the invoice to a third party. Lastly, in traditional factoring, the factor plays a more significant role by managing debt collection, payment reminders, and guarantees for unpaid amounts.

How reverse factoring works

Reverse factoring is initiated by the customer company. After receiving and approving an invoice, the customer company proposes early payment to the supplier through a financial institution that makes payment on the company’s behalf. This transaction is established as an assignment agreement.

How reverse factoring works:

• A supplier provides goods or services to a business and issues an invoice.
  
• After approving the invoice, the business proposes that the supplier participate in reverse factoring with a factor.
  
• The business asks the factor to pay the invoice on its behalf. The factor verifies the originator’s solvency. The factor then signs a partner agreement with the business and a simplified assignment agreement with the supplier.
  
• The factor pays the supplier in advance, generally within 24 to 48 hours, in exchange for a discount for cash payment.
  
• The factor passes the discount on to the business in exchange for a commission on services provided.
  
• The business pays the factor the amount of the invoice by its initial due date or as agreed.
  

Why use reverse factoring?

Reverse factoring meets a key objective for companies: optimizing cash flow management and strengthening relationships with commercial partners. By opting for early payment through a factor, the customer company improves its cash flow, secures its supply chain, increases payment flexibility, and enhances its credibility with suppliers.

Reverse factoring is a practical financial solution that offers more advantages than traditional bank loans, and, in general, the cost of reverse factoring is lower than loan interest.

Who is the target for reverse factoring?

Reverse factoring is a financial solution generally used in France by large companies that want to streamline their supply chain and improve their brand image: large corporations and corporate buying services, central purchasing organizations, and large or medium-sized retailers. However, reverse factoring is also accessible to small and medium-sized enterprises (SMEs).

Reverse factoring is a financial transaction that is particularly useful for companies that have complex supply chains and numerous suppliers in key industries. For example:

• Wholesale and retail distribution: Reverse factoring makes it possible for businesses to pay numerous suppliers quickly without depleting cash, while extending their payment terms without jeopardizing their business relationships.
  
• Manufacturing industry: Prompt payment of suppliers helps maintain financial stability and avoids potential delays in the production or delivery of purchased materials or components.
  
• Consumer goods: Prompt payment to suppliers helps avoid stock shortages or delivery delays and encourages the offering of discounts or more favorable commercial terms.
  
• Construction: While ensuring that suppliers are paid quickly, businesses can negotiate better payment terms, freeing up funds for other projects or operations.
  

However, to be able to benefit from reverse factoring, customer companies need to meet certain criteria:

• Minimum annual revenue: In general, revenue must reach several million euros to cover the cost of putting factoring contracts into place.
  
• High solvency ratio: Customer businesses must be able to repay the factor, who is responsible for paying the supplier, sometimes for very large amounts.
  
• Sufficient invoice volume: Invoice volume must be large enough to offset the various fees incurred by reverse factoring.
  
• Ongoing supplier relationships: For suppliers, reverse factoring is only advantageous when there are recurring purchases.
  

What institutions offer reverse factoring in France?

Many financial institutions (banks, factoring companies, financing platforms) offer reverse factoring services in France. These include: Factofrance (a subsidiary of Crédit Mutuel Alliance Fédérale), Société Générale Factoring, BNP Paribas Factor, Eurofactor (part of Crédit Agricole Leasing & Factoring), or BPCE Factor.

Advantages of reverse factoring

Reverse factoring provides multiple advantages to businesses and suppliers. Often a more cost-effective financing solution, it primarily allows for optimized cash flow, guaranteed invoice payment, a secure supply chain, and stronger business relationships with various partners.

Advantages for the purchasing businesses

• Improved payment terms: The timeline for repaying the factor may be longer than the initial payment deadline, without impacting suppliers.
  
• Cash flow optimization: Delaying the payment of invoices allows businesses to maintain improved liquidity for a longer period and to allocate available funds to other projects.
  
• Strategic long-term supplier loyalty: Businesses support their supplier partners by quickly paying invoices, demonstrating financial strength that enhances their image and credibility.
  
• Supply chain security: Prompt invoice payment reinforces financial stability and reduces the risk of delays or interruptions in the production and delivery of goods or services.
  
• Access to better payment terms: Guaranteed prompt payment enables businesses to negotiate better rates or discounts.
  
• Reduced working capital needs: Early payments do not immediately impact cash flow, providing greater financial flexibility and facilitating the financing of other transactions.
  
• Improved operating margins: The discount that businesses obtain when using reverse factoring helps them improve their margins.
  

Advantages for suppliers

• Minimized risk of delayed payment or nonpayment: The factor pays the business’s invoices within 24 to 48 hours, ensuring suppliers receive immediate payment after delivery of goods or services and eliminating concerns about business solvency.
  
• Minimized risk of legal disputes: Contracts related to reverse factoring generally include a clause preventing the factor from making claims against suppliers if a business does not pay invoices.
  
• Improved cash flow: Immediate payment of invoices ensures that suppliers have more cash available to finance essential operations (production, delivery, payment of invoices, etc.)
  
• Cheaper financing: Reverse factoring discount rates are often lower than those for other financing solutions, such as short-term bank loans.
  

Disadvantages of reverse factoring

Reverse factoring also comes with some disadvantages. The customer company needs to be able to pay the factor back by the deadline, which can be a challenge if the company is facing financial difficulties. This process also requires close cooperation between the company, the supplier, and the factor to define payment methods and ensure successful factoring.

In addition, reverse factoring is generally carried out by large companies, which may dissuade microbusinesses and SMEs from accessing this service or make it more difficult to do so. However, it is becoming more common for factoring companies to provide invoice financing solutions for French SMEs.

Costs of reverse factoring

Each reverse factoring transaction has two main costs, which are typically covered by the business:

• Factoring commission: The main cost of reverse factoring is the interest applied to the transaction. The amount can vary depending on several criteria: the business’s risk profile, the amount of the invoices to be paid, and the industries involved.
  
• Service commission: This covers administrative services related to the transaction (transaction management, risk evaluation, payment processing). The commission amount is usually low due to high volumes and reduced collection fees.
  

How Stripe Capital can help

Stripe Capital offers revenue-based financing solutions to help your business access the funds it needs to grow.

Capital can help you:

• Access growth capital faster: Get approved for a loan or merchant cash advance in minutes—without the lengthy application process and collateral requirements of traditional bank loans.
  
• Align financing with your revenue: Capital’s revenue-based structure means you pay a fixed percentage of your daily sales, so payments scale with your business performance. If the amount that you pay through sales doesn’t meet the minimum due each payment period, Capital will automatically debit the remaining amount from your bank account at the end of the period.
  
• Expand with confidence: Fund growth initiatives such as marketing campaigns, new hires, inventory expansion, and more—without diluting your equity or personal assets.
  
• Use Stripe’s expertise: Capital provides custom financing solutions informed by Stripe’s deep expertise and payments data.
  

Learn more about how Stripe Capital can fuel your business growth, or get started today.