Factoring
The cash purchase of a company’s accounts receivables (in the form of invoices) at a discount. The financier purchasing the receivables is called a factor, and is usually a specialised financial services company. The factor then directly receives the buyer’s repayment. Often the factor has the right of recourse back to the seller in the event of the buyer’s default or delayed payment. Some factors operate on a non-recourse basis (i.e. they assume the risk of non payment), although the costs to the seller are higher due to the greater risks assumed by the factor. The primary difference between factoring and forfaiting is that factoring is usually for short-term receivables (under 90 days) and more related to receivables against commodity sales.