JAIIB · IEIFS

FACTORING FORFAITING AND TReDS

Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Indian Economy and Indian Financial System — JAIIB.

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What is factoring in the context of trade finance?

Factoring is a financial arrangement where a firm sells its trade receivables (invoices) to a third party called a factor at a discount in exchange for immediate cash, transferring the credit risk and collection responsibility.

What is 'full-service factoring' and what does it include?

Factoring with finance, sales ledger management, credit protection, and collection.

What is the primary difference between recourse factoring and non-recourse factoring?

In recourse factoring, the seller (client) bears the credit risk if the debtor defaults, whereas in non-recourse factoring, the factor absorbs the credit risk of non-payment by the debtor.

What is 'selective factoring' in trade finance?

Factoring only specific invoices chosen by the client, not all receivables.

Which RBI committee recommended the development of a factoring framework in India?

The Kamath Committee (formally the RBI Working Group on Factoring Regulation) recommended a structured regulatory framework for factoring in India, leading to the Factoring Regulation Act, 2011.

What does 'assignment of receivables' mean in factoring?

Transfer of legal ownership of trade receivables from seller to factor.

Under which legislation is factoring regulated in India?

Factoring in India is regulated under the Factoring Regulation Act, 2011, which mandates that companies engaged in factoring business must register with the RBI.

What is the maximum tenure of receivables typically accepted under forfaiting?

Up to 10 years, typically 1 to 7 years for medium-term transactions.

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