Features of Forfaiting
- Forfaiting is an international finance mechanism.
- Any convertible currency can be used to receive the payments.
- In the Forfaiting mechanism, only long-term and medium-term bills receivables can be financed.
- The minimum value of the transaction must be greater than $100,000
- The third party has the right to hold treasury bills and promissory notes till the maturity period ends.
- Exporters have an advantage in forfaiting that they are not responsible for credit and money transfer-related risks.
- Forfaiting is extended to export capital goods.
- In forfaiting the credit period can range from three months to seven years.
Difference between Forfaiting and Factoring
Forfaiting and Factoring are often used synonymously by a layman, but there are differences between the two. Forfaiting is an international finance mechanism where an exporter sells its accounts receivables to a third party, whereas in factoring a business sells the receivables of accounts to a third party and in exchange receives an immediate advance on the amount.