In today’s post, we take a closer look at the differences between Factoring of Accounts Receivable and supply chain finance. Keep reading to learn more about these two financing options.
What Is Factoring of Accounts Receivable?
As we have seen in previous posts, Factoring of Accounts Receivable is a financing method where a business sells its receivables to a company called factor. The factor pays the business immediately, minus a small fee, and then proceeds to collect the invoice from the business’s customer.
This is a simple, smart way for companies to get cash fast without having to wait 30 to 90 days for their customers to pay them.
Here are some previous posts you can read to learn more about Factoring of Accounts Receivable:
- How Does Factoring Work?
- Why Use Invoice Factoring
- Invoice Factoring: the Basic Do’s and Don’ts
- 4 Tips to Get Full Advantage of Factoring of Accounts Receivable
What Is Supply Chain Finance?
Supply chain finance, also known as reverse factoring, is a financing alternative that shares some traits in common with Factoring of Accounts Receivable.
However, there is a key difference. While Factoring is a process initiated by the supplier, supply chain finance is an option almost always offered by the buyer (that’s why it’s called “reverse factoring”).
In a supply chain finance arrangement, the buyer partners with a third-party company to offer suppliers the alternative to get paid immediately (minus a fee) by the third-party company.
This is a convenient system for the buyer because after purchasing the invoices, the third-party company will typically offer longer repayment terms to the buyer. So, for example, if an invoice was originally due in 30 days, now the buyer might have 60 or 90 days to settle it.
Factoring of Accounts Receivable vs Supply Chain Finance
As we mentioned earlier, the key difference between Factoring and supply chain finance is who puts things in motion: the buyer in the case of supply chain finance, or the supplier, in the case of Factoring.
This is no small difference because, at the end of the day, it dictates who’s in control.
With supply chain finance, the buyer decides which suppliers are approved for advance payments and under what conditions. In fact, if their cash flow requires it, the buyer might even decide to eliminate the option overnight.
With Factoring you, the supplier, are in the driver’s seat. You decide when to factor your invoices as well as which invoices you want to factor, and how often.
In conclusion, while supply chain finance is a good alternative under certain conditions, only Factoring gives you total control over your cash flow.
ACS Factors: We Turn Your Invoices Into Cash
At ACS Factors, we are committed to keeping your business moving forward.
We are a Factoring located in Upland, California, and have many clients nationwide in the distribution and logistics corridor which includes Ontario, Riverside, Fontana, Jurupa Valley, and Moreno Valley.
Reach out today by email (firstname.lastname@example.org) telephone (909-946-5599), or through our social media accounts on Facebook, Twitter, and YouTube, and start enjoying the convenience of converting your accounts receivable into cash today!