Factoring and 

forfeiting differ in nature, scope, and concept. Factoring pertains to

the selling of a firm’s accounts receivables to a third party (a factoring company or a lender)
at a discounted price. In forfeiting, exporters transfer their rights to the forfeiter in exchange
for immediate cash.
The Definition of Factoring and Forfeiting
Factoring
Factoring which is also known as invoice factoring or accounts receivable financing – is the
process in which businesses receive advances against their accounts receivables. There
are three parties when it comes to factoring: the debtor (buyer of goods), the client (seller of
the goods), and the factor (the financier). This type of financing is often utilized to manage
book debt.
Forfeiting
Forfeiting is a financing option exporters use to receive immediate cash. How it works: The
exporter sells its claim on medium and long-term trade receivables to a forfeiter at a
discounted rate to receive fast access to cash. The benefit: Exporters minimize the risk,
which means the exporter is not liable when the importer fails to pay the receivables.
Key Differences Between Factoring and Forfeiting
The main difference between the two is that factoring can be used in domestic and
international trade, whereas forfeiting only applies to international trade financing.
Here are some additional key differences between factoring and forfeiting:
1. THE PROCESS
Factoring: A financial arrangement where business owners sell their invoices (accounts
receivables) to a third party (factoring companies, lenders, or banks) in exchange for fast
cash.
Forfeiting: a process in which an exporter sells their rights of trade receivables to a forfeit-
er to acquire immediate cash payment.
2. TIMING
Factoring: Deals with short-term accounts receivables, which typically last during 90 days
or less.
Forfeiting: Deals with medium- to long-term accounts receivables.
3. PERCENTAGE OF FINANCING RECEIVED
Factoring: Business owners usually get 80% to 90% financing.
Forfeiting: Funds exporters have 100% financing of the value of exported goods.
4. WHO PAYS FOR THE COST
Factoring: The seller or client pays for the factoring costs.
Forfeiting: The overseas buyer pays for the forfeiting costs.