Topic 11 - Supply chain finance

Question 1

What is the difference between Factoring & Invoice Discounting?

Answer 1

Factoring - a form of receivables purchase by the factor (financier). The factor becomes responsible for managing the debtor portfolio and collecting payment of the receivables.

• it there involves both a 1) financing function & 2) debtor management + collection function

Invoice Discounting - a form of receivables purchase by the lender. However, the lender is not responsible for debtor management.

• it therefore involves only a 1) financing function

Question 2

Forfaiting

1) what is forfaiting
2) under which ICC Publication is forfaiting included?
3) when is forfaiting typically used?

Answer 2

1) Forfaiting is a form of receivables purchase, consisting of a without recourse purchase of a future payment obligation/s represented by financial instruments or payment obligations (normally in negotiable/transferable form).
2) URF 800 - Uniform Rules for Forfaiting 800 (URF)
3) Forfaiting typically used when debts are owed over a longer term i.e. 2 - 3 years.