Factoring is called factoring in English. It can also be seen from the English name that this word is not easy to understand literally.

Then we treat the name as a symbol, and there is no need to understand it according to the name.

Factoring is a service in supply chain finance. It is based on accounts receivable and provides services including collection, management, guarantee, etc.

For example, I am a supplier of JD.com and I supply goods to JD.com, but JD.com has a 30-day account period and will not give me the money until 30 days later. Now all I have is a note for accounts receivable.

So now that I am in urgent need of money, I will find a financial institution and discuss with the financial institution. I will give you the 1 million accounts receivable, and you will give me 900,000 now. As for the subsequent collection of accounts receivable, your financial

The organization manages it itself.

For me, I get cash, and I don’t have to worry about whether the accounts receivable can be collected in time, or whether collection will be needed in the future, etc.

For financial institutions, they have plenty of money. If they lend out the money now, they can get back more money in the future. This is actually the logic of investing or earning interest on arrears.

The example mentioned above is the most common example of factoring.

In this example, the supplier actually went to the financial institution with the accounts receivable and wanted to ask the financial institution for money.

Then the financial institution has to judge several things. Is this account receivable real?

Is this supplier trustworthy?

Will JD.com, the core enterprise, repay the loan in time?

In fact, it is difficult to evaluate the credit of suppliers because ordinary suppliers are not as big as core enterprises and their credit is not that good.

It will be much easier to conduct a credit assessment on the core enterprise JD.com.

Therefore, the factoring business based on core enterprises such as JD.com was derived.

Generally, factoring done for sellers is called forward factoring, and factoring done for buyers is called reverse factoring.

In reverse factoring, the factoring institution finds the core enterprise, communicates with the core enterprise, transfers the accounts receivable to the factoring institution, and the factoring institution pays the seller.

In this way, the seller can make discounts in a timely manner and the buyer can centrally manage his/her payables.

We can see that compared with forward factoring, reverse factoring has several advantages: 1) It is initiated by the core enterprise and is based on the credit of the core enterprise 2) It is very easy to confirm the authenticity of accounts receivable notes; however,

, forward factoring is often more common, and it is definitely easier to implement forward factoring. The core reason is: the demand for core enterprises to actively do factoring is not strong, because it is mainly due to the high financial pressure and strong demand from their upstream and downstream companies.

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