Reverse factoring is a quick alternative way to finance growth. It has been developed as an extremely cost-efficient way for Suppliers of a large “Buyer” to convert their receivables into non-recourse cash at a competitive discount rate. The Express Business Funding (EBF) “Express-Pay Program” is a reverse factoring (or supply chain finance) program that helps to improve the cash flow of both Buyers and Suppliers in trade transactions. The cooperation between the Buyer and its Suppliers will become even more efficient with the utilization of this Program.
Extend Payment TermsBuyer maintains or extends payment terms, and in some cases, can earn a portion of the discount in the form of a rebate from the Factor.
Buyer no longer deals with individual requests for “quick-pay” from Suppliers since the program is standardized.
Build Strong Relationships
Closer and more positive relationships are built with the supply chain since the program is an offering and is not mandated. Suppliers can opt in and out as needs arise.
Cash Flow Improvement
Get paid fast … within 2 days following the sale of the receivable. Receivables can be sold either automatically or case-by-case according to your need for cash.
Working Capital Optimization
Sale of receivables for non-recourse cash improves liquidity, reduces Days Sales Outstanding (DSO) and improves the debt/equity ratio.
Cost ReductionAutomatically get paid on invoices once they are approved and generate working capital at a very attractive rate.
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Calculating the Cost – #1 – Supplier Paying
When selling the receivable, the Supplier pays a discount fee on the face value of the receivable. Assume discount rate is 2.0% … a fixed fee which covers the costs of the program as well as the institutions providing the funding for the benefit of the suppliers.
A supplier delivers products and invoices $100,000.00 to “Buyer”. “Buyer” approves and payment is due from in 60-days net. When participating in the Express-Pay Program, the supplier has option to receive payment in:
48 hours… Discount Rate of 4.00% (2% per month)
Funds paid = $96,000.00 48 hours from invoice acceptance
15-days … Discount Rate of 3.00% (2% per month)
Funds paid = $97,000.00 15-days from invoice acceptance
30-days … Discount Rate of 2.00% (2% per month)
Funds paid = $98,000.00 30-days from invoice acceptance
Calculating the Cost – #2 – Buyer Paying
Assuming the Buyer is covering the cost of financing in order to extend terms, the discount fee is added onto the face value of the invoice. Assume discount rate is 2.0% per month … a fixed fee which covers the costs of the program as well as the institutions providing the funding for the benefit of the suppliers.
A supplier delivers products and invoices $100,000.00 to “Buyer”. “Buyer” approves, is required to pay COD, but would like to pay in 60-days net. When participating in the Express-Pay Program, the supplier will receive $100,000 in 48-hours. The buyer makes commitment to Express Business Funding to pay $104,000 ($100,000 + 4%) in 60-days, but can has option to pay early on following schedule:
15-days … Rate reduced to 1.00%
Buyer pays $101,000.00 to EBF after 15-days
30-days … Rate reduced to 2.00%
Buyer pays $102,000.00 to EBF after 15-days
45-days … Rate reduced to 3.00%
Buyer pays $103,000.00 to EBF after 15-days