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Glossary

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 FAS (Free alongside ship)

An Incoterm which signifies that the exporter pays for transportation of the goods to the port of shipment, at which time title (ownership and risk) passes to the buyer. The buyer pays loading costs, freight, insurance, unloading costs and transportation from the port of destination to its factory.

 FCA (Free Carrier)

An Incoterm that covers the situation where an exporter delivers its goods into the custody of the first carrier, and this is where title (ownership and risk) passes from exporter to buyer. The buyer pays for the transportation.

 FOB (Free on board)

An Incoterm that represents an exporter’s requirement to deliver the goods to the ship, airline or other agreed mode of transport, at which time title (ownership and risk) passes to the buyer.  The exporter pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays freight, insurance, unloading costs and transportation from the port of destination to its factory.

 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. 

 Forfaiting

The cash purchase of an exporter's receivables (bills of exchange or promissory notes, or simply issued invoices, which the exporter is selling on an open account basis) at a discount. The forfeiter – the purchaser of the receivables – becomes the entity to whom the importer is obliged to pay its debt.  By purchasing these receivables - which are usually guaranteed by the importer's bank - the forfaiter frees the exporter from credit and from the risk of not receiving payment from the importer who purchased the goods on credit.  Unlike factoring, forfaiting is normally used for receivables against payments which are due over a longer term (90 days to up to 7 years).