Modern business schemes allow contractors to find the optimal formula for cooperation. Factoring and forfaiting are often confused because these concepts have a similar meaning. To understand the differences, you need to understand the specifics of transactions.
Factoring - sale of goods on a deferred payment basis, in which the supplier of the product transfers it to the buyer with payment for the transaction through a bank or a factoring company. A certain part of the money (within 90%) is transferred to the seller immediately, the rest - after the buyer's full payment for the goods. The factor makes a profit for the use of its resources, while the seller is liable for default by the buyer.
Forfaiting - an operation to redeem forfeitororm obligations from the debtor to the creditor. The financial agent assumes all risks and can resell the debt to a third party. From the moment of redemption of the obligation, the supplier of the products receives all the funds and does not bear any responsibility for the inability of the buyer to pay for the goods received.
So, the difference between financial transactions is due to the peculiarities of their implementation. Factoring operation lasts a maximum of 180 days, forfaiting - up to several years. The forfaiter assumes all risks, from payment to political. The factor shifts part of the responsibility to the client: if the obligation is not fulfilled, the factor has the right to demand the return of its funds (insurance is used to minimize the risks).
Finally, the factor transfers to the supplier only part of the money under the transaction, the rest after the fulfillment of obligations. Forfaiter pays in full to the seller, and can sell his obligation in the future. The transfer of factoring to third parties is not provided.
- Terms. The maximum duration of a factoring operation is 180 days, and a forfeiting operation is several years.
- Risks. In case of factoring, non-fulfillment of obligations by the debtor entails liability for the supplier, in case of forfeiting, it does not.
- Compensation. With factoring, the supplier is given 60-90% of the payment, and the rest is frozen until the full payment of the debt, with forfeiting - 100% of the payment.
- Transfer. Factoring assets cannot be sold to third parties, while forfeiting assets can.