Reverse Factoring for MSMEs: A Financial Tool for Supply Chain Development?
Since the 2008 financial crisis, attention to supply chain finance has increased, as companies seek alternative funding sources. In this context, one scheme for accessing short-term credit has emerged as a promising option for suppliers, especially micro, small and medium-sized enterprises (MSMEs): reverse factoring. Under reverse factoring, suppliers sell their accounts receivable to financial intermediaries to get access to instant cash, while buyers (anchor companies) make an irrevocable payment guarantee (confirmation) to those financial intermediaries, with the objective of increasing the credibility of the payment obligation and reducing risks.
This paper discusses relevant concepts and reviews theoretical and empirical evidence related to reverse factoring. Reverse factoring may be a beneficial financing tool for both suppliers and buyers, contributing to supply chain development. However, there are potential trade-offs to this approach which need to be carefully assessed. Overall, more specific data on the use of reverse factoring and quantitative research on its impacts is needed both for advancing the academic and managerial literature on this topic and for designing better-targeted public and private interventions in this area.