What is the similarity between factoring and forfaiting?
Posted: Wed Jan 08, 2025 4:00 am
In addition, with the help of forfaiting, the exporter does not depend on a sharp change in the exchange rate or the political situation in the importer’s country.
If we talk about what forfaiting is, in simple terms, then for an exporter it is an opportunity to fully insure against risks in international transactions.
But it is only available to large enterprises, since forfaiters do not work on export contracts with amounts below a certain threshold.
Both factoring and forfaiting are based on the new zealand whatsapp phone number assignment of rights to monetary claims. These financial services solve one problem: how to convert the deferments that the seller provides to the buyer into real money.
The factor and forfaiter become a third party in the transaction between the supplier and the buyer of goods and services. Thanks to them, the company producing the goods or providing the services can focus on the core business processes without paying too much attention to financial issues.
On the topic. Sources of business financing: types and examples
Forfaiting and factoring: differences in concepts
Factoring is a tool that is primarily used for business lending. Forfaiting, in turn, is more of a financial risk management service.
How forfaiting differs from factoring:
A factoring company finances the replenishment of working capital of entrepreneurs, and a forfaiter services specific transactions.
The term of a factoring transaction does not exceed six months, and in forfaiting, debt claims may remain valid for up to ten years.
The forfaiter always frees the client from financial risks, and in factoring the risks are in many cases shared by both parties.
Factoring is aimed at the small and medium business segment, while forfaiting is used mainly by large companies.
In a factoring agreement, it is possible to provide for conditions for payment recourse, but in forfaiting, recourse is not possible.
Factoring is very common in the Russian market, many small and medium businesses use it. Forfeiting is used mainly by large businesses for international trade transactions.
Theoretically, this instrument can be used on the domestic market as well. However, in Russia, this financial service is not yet used by market participants as widely as factoring. One possible reason is that banks consider the risks in forfeiting too high.
Let's sum it up
Factoring and forfaiting - what is the key difference? Factoring is one of the most common and popular methods of financing small transactions in Russian business.
Forfaiting is an exotic and rather rare instrument of importer financing. It insures them against the risks of non-payment by the importer. Forfaiting is usually used to structure individual transactions in foreign economic activity. These financing instruments should not be compared with each other, as they are used for different purposes.
If we talk about what forfaiting is, in simple terms, then for an exporter it is an opportunity to fully insure against risks in international transactions.
But it is only available to large enterprises, since forfaiters do not work on export contracts with amounts below a certain threshold.
Both factoring and forfaiting are based on the new zealand whatsapp phone number assignment of rights to monetary claims. These financial services solve one problem: how to convert the deferments that the seller provides to the buyer into real money.
The factor and forfaiter become a third party in the transaction between the supplier and the buyer of goods and services. Thanks to them, the company producing the goods or providing the services can focus on the core business processes without paying too much attention to financial issues.
On the topic. Sources of business financing: types and examples
Forfaiting and factoring: differences in concepts
Factoring is a tool that is primarily used for business lending. Forfaiting, in turn, is more of a financial risk management service.
How forfaiting differs from factoring:
A factoring company finances the replenishment of working capital of entrepreneurs, and a forfaiter services specific transactions.
The term of a factoring transaction does not exceed six months, and in forfaiting, debt claims may remain valid for up to ten years.
The forfaiter always frees the client from financial risks, and in factoring the risks are in many cases shared by both parties.
Factoring is aimed at the small and medium business segment, while forfaiting is used mainly by large companies.
In a factoring agreement, it is possible to provide for conditions for payment recourse, but in forfaiting, recourse is not possible.
Factoring is very common in the Russian market, many small and medium businesses use it. Forfeiting is used mainly by large businesses for international trade transactions.
Theoretically, this instrument can be used on the domestic market as well. However, in Russia, this financial service is not yet used by market participants as widely as factoring. One possible reason is that banks consider the risks in forfeiting too high.
Let's sum it up
Factoring and forfaiting - what is the key difference? Factoring is one of the most common and popular methods of financing small transactions in Russian business.
Forfaiting is an exotic and rather rare instrument of importer financing. It insures them against the risks of non-payment by the importer. Forfaiting is usually used to structure individual transactions in foreign economic activity. These financing instruments should not be compared with each other, as they are used for different purposes.