factoring vs forfaiting

Factoring and forfaiting are financial tools used by businesses to manage cash flow from sales. Factoring involves selling accounts receivable (outstanding customer bills) to a third party (a factor), who then collects payments over time. It often includes ongoing sales and may involve factoring short-term receivables. Forfaiting, on the other hand, involves selling long-term, often export-related receivables, usually through a one-time transaction, with the forfaiter taking on the risk of non-payment. While factoring mainly focuses on immediate cash flow from receivables, forfaiting provides liquidity for longer-term sales, typically in international trade.