As opposed to factoring, this system applies to the businesses’ goods or services purchases. So, this is a system, usually offered by a bank, which acts in the supply chain of customers, allowing to avoid administrative work of generating payments to suppliers, offering them the possibility to advance the collection of their invoices. This is a simple process in which a company sends to the bank a detailed list of payment orders with proper identification and processing information. Then the bank sends to each of the suppliers a notice on the future bill payments, offering a credit for the early settlement of the invoices, getting to the discretion of the supplier.
- Reducing the administrative costs for issuing payment orders
- Improving the bargaining power of purchasing to the supplier
- Greater flexibility of debt settlement
- Increased security in the issuance of orders
- Usually, compared with payment against open account or documentary collection, the administrative costs are higher