Reverse factoring – improved balance sheets for suppliers and buyers

For any supplier, poor cash flows as a result of long payment terms puts financial limitations to their business and potentially impedes growth. They might prefer receiving early payment, whereas the buyer will be adversely affected if letting go of the money earlier.

Reverse factoring is one answer to this challenge, offering a quick payment option to suppliers. Buyers often uses the solution to extend payment terms, since Danske Bank steps in as a financing intermediary.

How does it work

The solution works for buyers with a relatively high creditworthiness, who are also a customer at Danske Bank. As a result of the solution, the buyer improves their working capital ratios, while the supplier receives cash right away at a financing rate which is more beneficial than they can obtain themselves.

Besides lower financing costs, this might well lead to stronger trading relationships. The balance sheets are improved for both trading partners, and the ultimate benefit is that of a healthier supply chain.

Please reach out to us if you want to know more. If you are already a customer of Danske Bank, you may learn more in the Supply Chain Finance module in Business Online/District.

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