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Forfaiting vs factoring: selling export receivables for cash

Forfaiting and factoring both let an exporter sell its foreign receivables and get paid now instead of waiting for the buyer. Forfaiting is for single, larger sales on medium- or long-term credit: the forfaiter buys the receivable without recourse at a discount, usually backed by a bank-avalised bill of exchange or a letter of credit. Factoring is a recurring service for short open-account invoices, with part of the invoice advanced up front.

Checked against official sources: 2026-10

At a glance

ForfaitingSale of medium- and long-term export receivables to a forfaiter at a discount, without recourse to the exporter
Forfaiting tenorMost transactions between 180 days and seven years
Forfaiting sizeIn the US, used on transactions over USD 100,000; typically USD 500,000 and above according to ICC Academy
Forfaiting instrumentsNegotiable instruments such as bills of exchange avalised by a bank, or letters of credit
Forfaiting finance100% of the nominal value of the instrument, less the discount
FactoringRecurring sale of short-term open-account invoices, with or without recourse
Factoring termsCredit terms of up to 180 days; advances typically 80% to 90% of invoice value
CostForfaiting fees are often higher than other commercial lender financing; factoring service fees typically 0.5% to 1% of invoice value

How forfaiting works

In forfaiting, the exporter sells medium- and long-term foreign accounts receivable to a forfaiter, which is a specialised finance firm or a department of a bank, at a discount. Because the sale is without recourse, the exporter has no further interest in the financial side of the transaction, and the forfaiter, not the exporter, collects payment from the foreign buyer. Most forfaiting transactions mature between 180 days and seven years.

Forfaiting is backed by transferable, negotiable instruments, usually a bill of exchange or promissory note avalised (guaranteed) by a reputable bank, or a letter of credit; with a bank-avalised instrument the purchase can be completed the day after the documents are verified. In the US it is mainly used by established large and medium-sized companies exporting capital goods and commodities, on transactions over USD 100,000, and it can open sales in markets considered high-risk. The exporter should talk to a forfaiter early, before agreeing the price with the buyer, because the discount is a cost of the sale.

Forfaiting vs factoring at a glance

When each one makes sense

Forfaiting suits an exporter selling machinery, equipment or large commodity contracts to a buyer that wants to pay over one or more years: the exporter is paid in cash at shipment and removes virtually all risk of non-payment. Its fees are often higher than other commercial lending, so the discount needs to be built into the price.

Factoring suits an exporter that sells regularly on open account with credit terms of up to 180 days and wants steady cash flow. The factor advances most of each invoice, collects from the buyer and pays the balance less its fee. Export credit insurance is another way to protect open-account sales, and insured receivables can also be easier to finance.

Step by step

  1. Decide whether the sale is a one-off medium- or long-term deal (forfaiting) or a flow of short open-account invoices (factoring).
  2. For forfaiting, contact a forfaiter before quoting the buyer, and get an indicative discount rate.
  3. Agree with the buyer on the payment instrument: a bank-avalised bill of exchange or promissory note, or a letter of credit.
  4. Build the discount or factoring fee into the export price.
  5. After shipment, present the instrument and documents to the forfaiter, or the invoices to the factor, and receive the cash.

Documents you usually need

Common problems and how to avoid them

The buyer's bank will not avalise the bill of exchange.

What to do: Ask for a letter of credit instead, or a guarantee from another acceptable bank, or check whether the forfaiter accepts the corporate risk (which can take days or weeks).

The discount was not priced into the sale.

What to do: Get an indicative forfaiting rate before quoting, and add it to the price of a deferred-payment sale.

A small, short-term invoice is offered for forfaiting.

What to do: Forfaiting is meant for larger medium- and long-term receivables; consider factoring, export credit insurance or the bank's own receivables finance.

The exporter expects the factor to carry all non-payment risk.

What to do: Check whether the factoring is with or without recourse; with recourse, the exporter still bears the buyer's default.

Sources

  1. Forfaiting (Trade Finance Guide) International Trade Administration (ITA)
  2. Factoring vs Forfaiting: Choosing the right trade finance tool ICC Academy

Rules change often. This note is practical guidance based on the sources above, not legal advice. Confirm current requirements with the authority, your importer or a licensed customs broker before you ship.

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Trade notes

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Common questions

What is forfaiting in export finance?

The sale of medium- and long-term export receivables to a forfaiter at a discount, without recourse to the exporter, usually backed by an avalised bill of exchange or a letter of credit.

What is the difference between forfaiting and factoring?

Forfaiting is for one-off medium- or long-term receivables, always without recourse and backed by a negotiable instrument; factoring is a recurring service for short open-account invoices, with or without recourse.

How long can forfaiting terms be?

Most forfaiting transactions mature between 180 days and seven years.

Is forfaiting expensive?

Its fees are often higher than other types of commercial lender financing, so exporters usually build the discount into the sale price.

How much does a factor advance?

Typically 80% to 90% of the invoice value, with the balance paid after the buyer pays, less the factor's fee.

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