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Question

Factoring and forfeiting are two different ways of extending credit by financial institutions. Which of the following is NOT a difference between factoring and forfeiting?

A Factoring is with or without recourse while forfeiting is always without recourse Correct Answer Incorrect Answer
B Factoring is usually done for domestic transactions while forfeiting is done in case of international transactions. Correct Answer Incorrect Answer
C In factoring the seller of invoice receives the payment upfront while in forfeiting the seller of invoice gets the payment in instalments Correct Answer Incorrect Answer
D Factoring involves short term maturity invoices while forfeiting involves medium to long term invoices Correct Answer Incorrect Answer
E All are the differences between factoring and forfeiting Correct Answer Incorrect Answer

Solution

In Factoring the seller receives payment in 2 instalments; majority (around 75-90%) is received at the time of sale of invoice and the balance at the end of the invoice maturity. While in forfeiting the funding is provided 10% upfront at the time of sale of export invoice.

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