How can anchor companies promote access to financing for MSME suppliers?

MSMEs receive less than 15% of the credit granted to companies. A new post on the IDB Invest blog covers the “reverse factoring” as an alternative financial instrument that allows MSME suppliers to finance their production cycle.

In reverse factoring, the buyer (anchor company) is also involved and grants an irrevocable guarantee of payment to the financial intermediary for supplier invoices, thus increasing the credibility of the payment obligation and reducing risk. This allows vendors to sell their accounts receivable at lower rates, as rates are based on the creditworthiness of the buyer (anchor company with a credit rating). Brazil, Chile and Mexico already require electronic invoices and are leaders in the adoption of factoring and reverse factoring in the region.

A study conducted by IDB Invest delves into the evidence on reverse factoring and analyzes the benefits and costs for MSMEs in supply chains, summarizing its findings in 10 main takeaways.