Receivables Factoring and Supply-Chain Finance

A company waiting 60 days to collect an invoice or pay a supplier doesn't have to wait. Two tools pull that cash forward in opposite directions — one sells a receivable early, the other stretches a payable out — and both can flatter reported cash flow in ways that are easy to miss without reading the fine print.

Two versions of the same trick

Factoring: a company sells its accounts receivable to a factor (often a bank or specialty finance firm) for cash today, at a discount reflecting the time value of money and the credit risk of the customers who owe the money. Done "without recourse," the credit risk transfers to the factor and the receivable can be derecognized; done "with recourse," the seller keeps the credit risk and the transaction looks more like a secured loan.

Supply-chain finance (reverse factoring): initiated by the buyer, not the supplier. A large, highly-rated buyer arranges for a bank to pay its suppliers early, at the buyer's own low borrowing rate rather than the supplier's often-worse rate; the buyer then repays the bank later, on extended terms. The supplier gets cash faster and cheaper than it could arrange alone, and the buyer effectively borrows — but the obligation is usually still classified as an ordinary trade payable rather than as debt, because it technically remains "amounts owed to suppliers." The 2021 collapse of Greensill Capital, and the resulting scrutiny of clients like Carillion, exposed how large these programs can grow with limited standalone disclosure.

Worked example

A distributor holds $80m of receivables due in 60 days. It factors them without recourse at a 2% discount, receiving $78.4m in cash immediately instead of waiting two months for $80m. Cash flow from operations rises $78.4m sooner than it otherwise would have, at a cost of $1.6m — an annualized financing cost of roughly 2% × 6 (to annualize a 2-month discount) ≈ 12%, which is worth comparing against the distributor's actual cost of borrowing before assuming factoring is cheap.

What this means in practice

Both tools are legitimate working-capital management, but both also let a company pull operating cash flow forward without it being obvious that a recurring financing arrangement, not an improving business, is driving the trend. For reverse factoring specifically, growing use is a leverage story disclosed as a payables story — a sudden reduction or unwind of the program (a bank pulling out, as happened around Greensill) can force a sharp, involuntary increase in reported payables days or a scramble for alternative financing.