Reverse Factoring: An Early Empirical Examination

Abstract

Our study examines whether reverse factoring (RF) affects the number of days that it takes for a buyer to pay its supplier invoices (commonly referred to as the “payment period”). We examine our research question using two distinct but complementary samples to overcome the scant availability of archival data on RF. First, using a proprietary dataset from an RF provider, we find that on average the payment period becomes 37 days longer after a buyer adopts RF; the increase in the payment period is larger when buyers have more negotiating power over their suppliers. Second, using a sample of newly mandated disclosures from UK firms, we find that compared to non-RF firms, firms using RF on average take 11 days longer to pay their supplier invoices, pay 13.6% fewer of their invoices within 30 days, and pay 14.5% more of their invoices later than 60 days. In additional analyses, we build an empirical profile of RF firms, which tend to be more financially stable and better performing, compared to non-RF firms. Our study contributes to the notably small literature on RF and can inform the regulatory debate on the financial reporting for RF by providing a direct answer to the SEC’s repeated question to multiple buyer firms asking whether RF impacts the payment period.

Keywords: supply chain financing, reverse factoring, trade credit, accounting standards, supply chain

JEL Classification: G21, G23, L14, M41