5 Questions
What is factoring in the context of debtor finance?
Factoring is a financial transaction in which a business sells its accounts receivable to a third party at a discount.
What is forfaiting and in what context is it used?
Forfaiting is a factoring arrangement used in international trade finance by exporters who wish to sell their receivables to a forfaiter.
What is another name for factoring?
Accounts receivable factoring, invoice factoring, and sometimes accounts receivable financing.
How is accounts receivable financing different from factoring?
Accounts receivable financing is a form of asset-based lending against accounts receivable, while factoring involves selling the accounts receivable to a third party at a discount.
What is the leading trade association for the asset-based lending and factoring industries in the United States?
The Commercial Finance Association.
Study Notes
Debtor Finance
- Factoring is a financing method where a business sells its accounts receivable to a third party, known as a factor, at a discount.
Forfaiting
- Forfaiting is a financing method used for international trade, where a business sells its accounts receivable to a forfaiter, without recourse, at a discount.
Alternative Names for Factoring
- Another name for factoring is accounts receivable financing.
Accounts Receivable Financing vs Factoring
- Accounts receivable financing involves using accounts receivable as collateral to obtain a loan, whereas factoring involves selling the accounts receivable to a third party.
Trade Association
- The leading trade association for the asset-based lending and factoring industries in the United States is the Commercial Finance Association (CFA).
Test your knowledge of factoring and forfaiting with this quiz! Explore the concepts of debtor finance, accounts receivable, and the role of factors in facilitating cash flow for businesses. See how well you understand these financial transactions used in both domestic and international trade.
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