Factoring, Forfaiting And Trade Receivables Discounting (Treds)
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Indian Economy and Indian Financial System — JAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is factoring in trade finance?
Factoring is a financial arrangement where a business sells its trade receivables (invoices) to a third party called a factor at a discount, receiving immediate cash instead of waiting for the debtor to pay.
What is the primary purpose of factoring as a financial service?
Converting trade receivables into immediate cash for businesses.
Who are the three parties involved in a factoring arrangement?
The three parties are the seller (client), the buyer (debtor), and the factor (usually a bank or NBFC that purchases the receivables).
What is 'advance factoring' in trade finance?
Factor pays a percentage of invoice value upfront before collection.
What is the difference between recourse and non-recourse factoring?
In recourse factoring, the seller bears the credit risk if the debtor defaults; in non-recourse factoring, the factor absorbs the credit risk, making it more expensive for the seller.
What is 'disclosed factoring' in trade receivables management?
Buyer is informed that invoices have been assigned to the factor.
What is forfaiting and how does it differ from factoring?
Forfaiting is the purchase of export receivables (usually medium to long-term) by a forfaiter on a non-recourse basis; unlike factoring, forfaiting typically deals with capital goods exports and involves bills of exchange or promissory notes.
What is 'undisclosed factoring' in the context of trade finance?
Buyer is unaware that invoices have been assigned to a factor.
Video classes for this chapter
More chapters in Module D - Financial Products and Services
Related articles & notes
In-depth Indian Economy and Indian Financial System guides from our blog.
Master the full IEIFS syllabus
Every chapter of Indian Economy and Indian Financial System — videos, tests, notes and one-liner decks in one place.