do you want to get financing from exports of your company but you do not know the existing options? In this article we will talk about the differences between forfaiting and factoring, so that you know both modalities well.
A brief review of export financing: Forfaiting and Factoring
¿what is he forfaiting? It is one of the tools available to companies to finance their exports, through which a financial institution advances the collection of outstanding customer credits to the company concerned, the former assuming the risk related to possible customer defaults.
And on the other hand,what is he factoring? This financial tool, like forfaiting, anticipates collection of outstanding promissory notes and bills, and can be distinguished different types of factoring: Without recourse, with recourse, secret, national and international.
It should be noted that, regardless of the option chosen, a prior customer solvency studys, so that the possible delinquency of the clients associated with the outstanding credits can be determined and evaluated. This financial advice It already reports very valuable information for companies, regardless of whether the financial organization in question finally refuses to carry out the operation.
Differences between Forfaiting and Factoring
There are various differences between forfaiting and factoring. In addition to the clear dissimilarity consisting of the existence of different types of factoring, a fact that does not occur in forfaiting, other differences between the two types of export financing are the following.
Assumption of risk in case of non-payment
When operations are undertaken forfaiting, the requesting company will never have to respond to the financial institution in situations of delinquency of the company's debtors. Said financial entity, after carrying out a study of the solvency of the clients, assumes all the risk related to the collection of the credits, without any possibility that they can resort to the company to claim the money they advanced.
However, and specifying for the factoring With recourse, we are faced with a different situation. This type of factoring consists of the fact that the financial institution is in charge of everything related to the management of collections but, in this case, the risk associated with possible non-payment is not transferred to the financial organization, but it continues to fall on the petitioning company.
In this respect, both financial instruments do not differ only in the types of documents included, they also do it in the amount. In forfaiting, those are incorporated documents that are internationally acceptedhow can they be promissory notes and bills. Also, the number of effects with whom you work is usually reduced.
On the other hand, operations factoring are usually supported in Sales invoices, and the number of documents transferred in this type of operation is usually much higher.
Expiration terms of the bills
On one hand, the bills and promissory notes that are included in forfaiting contracts have long maturities over time. Normally these maturities exceed one year, and can even go up to 5 years in the case of some documents. In this way, it can be affirmed that the forfaiting is a financial tool applied in credits to long term.
On the other hand, the Notes that are assigned within factoring shares have short maturities, very frequently having a monthly character and not exceeding 120 days (it is very unusual for them to reach a year).
Scope of business operations
He factoring It is a suitable type of operation for companies that operate both national and international levelhe. This is because it can be applied to exports and sales within the country where the company is located.
However the forfaiting applies only to exports, sales that exceed national borders, so it is an instrument indicated only for companies whose scope of activity is international.
Liquidity needs can appear at any time, and a good way to meet these needs is to resort to one of the available export financing modalities. Thanks to the preparation of this article, we hope and trust that by reading it you will fully understand the differences between forfaiting and factoring, so that it is easier for you to know which tool to turn to, depending on each specific situation.
If you need additional help to finance your exports, at Alter Finance we encourage you not to be left with any doubts. Contact us without any commitment.