Reverse Factoring (UK)

Reverse factoring (also called supply chain finance, SCF, or buyer-initiated payments) is a programme set up by a large UK corporate buyer to pay its suppliers early. The buyers bank or finance provider pays the supplier the invoice value, minus a small discount, on day 5 to 10. The buyer then pays the bank on the contracted payment date, typically day 60 to 90. Different from invoice finance in that the buyer initiates and bears the cost, and the supplier just opts into the programme. Used widely by large UK corporates (Tesco, Sainsbury, BAE Systems, Diageo, Marks and Spencer) to support their supplier base while preserving working capital. Confused or mis-used reverse factoring contributed to the collapse of Carillion in 2018 and Greensill in 2021.

How reverse factoring works in 4 steps

1. Buyer sets up the programme. A large UK corporate buyer contracts with a bank or SCF provider to run a supplier-payment programme. The buyer typically negotiates favourable rates because of its credit rating and the volume it represents.
2. Supplier opts in. Each supplier the buyer invites can opt in or stay out. Opting in means the supplier agrees to accept early payment from the bank at a small discount instead of waiting for the contractual due date from the buyer.
3. Invoice is uploaded and approved. The supplier raises the invoice as normal; the buyer approves it on the SCF platform. Once approved, the invoice is irrevocable: the buyer commits to pay the bank on the contracted date.
4. Bank pays supplier early. Typically day 5 to 10 from invoice date the bank pays the supplier the invoice value minus a small discount (often 0.5 to 2% of the invoice). The buyer pays the bank on day 60 to 90 as originally agreed.

Reverse factoring vs invoice finance: the key differences

Which UK corporates run reverse factoring programmes?

Most of the FTSE 100 and large UK private companies operate SCF or reverse factoring programmes. Public examples include Tesco, Sainsbury, BAE Systems, Diageo, Marks and Spencer, Unilever, BT, Vodafone, Network Rail, NHS Shared Business Services (for NHS supplier payments). Providers running the programmes include Taulia (now SAP), Tradeshift, Greensill (defunct), JPMorgan, HSBC, Barclays, Lloyds, and specialist platforms.

Should I opt into a reverse factoring programme as a UK supplier?

Usually yes, with these caveats. The discount the bank takes (0.5 to 2%) is typically much cheaper than invoice finance because the bank is taking the buyers credit risk, not yours. Early payment improves your cashflow and may eliminate the need for invoice finance entirely for that buyer, though most suppliers still keep a confidential invoice discounting or factoring facility for invoices outside the buyer's programme. Three things to check: (1) Does opting in commit you to discount future invoices, or is it per-invoice optional? (2) Can the buyer change the payment terms unilaterally after you opt in? (3) Is the buyer extending its own payment terms at the same time (a common trick: the buyer pushes you from 30 days to 90 days while offering SCF at 0.5% to take it earlier; you end up subsidising their working capital).

The Carillion and Greensill lessons

Reverse factoring was a contributing factor in two high-profile UK insolvencies. Carillion (2018) used SCF to disguise £400m+ of supplier liabilities as trade payables rather than bank debt, which delayed creditor recognition. Greensill (2021) collapsed when its securitisation backers withdrew, leaving UK and global suppliers exposed.

The Financial Reporting Council and FRC have since tightened audit guidance: SCF arrangements that look more like bank debt than trade payables must be reclassified. For suppliers, the lesson is to take any reverse-factoring offer at face value: it is early payment from a bank, not a guarantee that the buyer will not default.

If you are a supplier without access to a reverse factoring programme

Invoice finance is the supplier-side alternative. It does not require the buyer to opt in or run a programme; you set it up yourself with a provider like Bibby, Close Brothers, Aldermore, Hydr or Triver and you fund every eligible B2B invoice regardless of which customer it is to. Depending on your size and how much you want customers to know, that means invoice factoring (disclosed, collections run for you), invoice discounting (confidential, you keep credit control) or selective invoice finance (fund just one or two invoices). MarketInvoice quotes three best-fit providers from the UK panel within 24 hours.

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