Forfeiting: The term “a forfait” in French means, “relinquish a right”. It refers to the exporter relinquishing his right to a receivable due at a future. Factoring – Meaning Is a financial service Institution called ‘Factor’ which – Undertakes the task of realizing ‘receivables’, i.e. accounts receivables, book debts. What is Factoring and Forfaiting – Key Differences – Finance is a crucial part for any business to be successful. In Exports, cost of finance.

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Published by Evan Cain Modified over 3 years ago. After sale, a copy of the invoice, delivery challan, the agreement, other papers are handed over to the Factor. The Faactoring receives payment from the buyer on the due date as agreed, whereby the buyer is reminded of the due date payment amt. The Factor remits the money collected to the seller after deducting its own service charges at the agreed rate.

Thereafter the seller closes all transactions with the Factor. The seller passes on papers to the Factor for recovery of the amount. Specialized vactoring where Factor assumes the risk associated with collection of receivables.

If the debtor does not pay the Factor bears the risk of bad debt loss. Factoring of receivables helps the firm do away with the credit department, and its debtors become the debtors of the Factor. This is a basic requirement for the working of a factoring service.

Fiduciary Position Position of the factor is fiduciary in nature, as it arises from the relationship with the client firm. The Factor is mainly responsible for fulfilling the terms of the contract between the parties. Professionalism Factoring firms professionally competent, with skilled persons to handle credit sales realizations for different clients in different trades, for better credit management. Factor reduces the dependence on fforfaiting for working capital finance. This relieves the firm greatly of the burden of finding funding facility.


Recourse Factoring Non Recourse — the Factor will have no recourse to the seller on non payment from the customer. With Recourse — The factor will have factorkng to the seller in the event of non payment by the buyers. Compensation A Factor works in return for a service charge calculated on the turnover.

Factor pays the net amount after deducting the necessary charges, some of which may be special terms to handle the accounts fsctoring certain customers. Name of proposed Factor mentioned on the invoice, made by the seller of goods.

Factoring (finance) – Wikipedia

Buyer to pay directly to the Factor. Could be recourse or factorjng Recourse. Name of the proposed Factor not disclosed by the seller in the invoice. But all sales realization done by the Factor in the name of the seller. Control of all the monies with the Factor. Quite popular in the U.

Is a process where the Factor discounts the Invoices of forfiating seller at a pre-agreed credit limit with a financing institution. Book debts and receivables serve as securities for obtaining financing accommodation.

If importer does not honor claims, the exporter has to make the payment to the Factor. Export Factoring offered as both Recourse and Non Recourse factoring. International factoring always works on Non recourse factoring model.

They handle the overseas credit sales of the exporter. Complete protection to the exporters against bad debts loss on credit approved sales. Factors take assistance and avail the facilities provided by the exporting country. For the exporter, once the goods are shippedhis sole debtor is the Factor.

Then he delivers the relevant documents invoices, bill of lading, other supporting documents to the export factor. The import factor disseminates credit information about importer, and on maturity forfaitimg credit period, makes payment to the export factor, on assignment of documents. Factor bears the loss of irrecoverable debts. Factor actively involves in the process of grant of credit to customers.

Balance on payment by the customers.

Factor collects interest on the same. Net Factor advance calculated as: Payment by the Factor on the Guaranteed date or Date of collection. Guaranteed date fixed factorinb considering the previous ledger experience of the clientand date of collection being reckoned after due date of the invoice.


Factors provide payment reports to the clients. ECGC enters into a tripartite agreement with the exporter and the authorized dealer. Lack of experience and database to take on jobs such as credit evaluation forfaitinv clients.

Expensive system of multiple databases maintained by Individual factors. Lack of uniformity in the specialized credit information agencies. High stamp duty on assignment of debt to Factors.

Difference Between Factoring and Forfaiting (with Comparison Chart) – Key Differences

High cost of operations and resulting less profitability for the factors. Purchase through discounting of the documents. Entire risk of non payment at the time of selection, covered. All risks become the full responsibility of the forfaiter purchaser.

Essentially involves non recourse bills discounting.

Difference Between Factoring and Forfaiting

A forfaiter may buy or sell these bills like any other security, in the secondary market. Steps Commercial contract signing: Transaction Exporter sells and delivers the goods to the importer. Factoring Contract Exporter and forfaiting agent enter into a forfaiting contract. Here also it is non recourse finance, which converts credit sale into cash sale. Does not lock up any bank limits. Considered valuable medium to long term post shipment finance for large size exports.

Characteristics of Taxable Securities Money Market Investments Highly liquid instruments which mature within one year that are issued by governments and. Factoring is of recent origin in Indian Context.

Kalyana Sundaram Committee recommended introduction of factoring in Banking. My presentations Profile Feedback Log out.

What is Factoring and Forfaiting – Key Differences

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