Supply chain financing (or reverse factoring) is a form of financial transaction wherein a third party facilitates an exchange by financing the supplier on the customer's behalf. The term also refers to practices used by banks and other financial institutions to manage capital invested into the supply chain and reduce risk for the parties involved.[1]
Unlike traditional factoring (where a supplier wants to finance its receivables), supply chain financing is initiated by the ordering party (the customer) in order to help its suppliers to finance its receivables more easily and at a lower interest rate than what would normally be offered. The technique has been used in wealth management schemes to defraud investors, for example by the second largest Chinese real estate company, Evergrande Group.[2]
In 2011, the reverse factoring market was still very small, accounting for less than 3% of the factoring market.[citation needed]
