When it comes to finding solutions for cash flow problems, today’s growing businesses are rarely aware of their options. Many business owners and CFOs believe that they are at the mercy of the banks for all their financing needs, and if the banks deem them unworthy, it’s lights out for their business idea.
Fortunately, this isn’t the case.
Even if you’ve been deemed “unbankable” by traditional financial institutions, there are still options available for getting the capital you need to go from surviving to thriving. In a previous post, we discussed the main differences between the factoring services provided by The Commercial Finance Group and another type of short-term financing: Bill Discounting.
In this post, we’ll compare factoring to yet another short-term financing option: Forfaiting.
How Does Forfaiting Work?
In the financial industry, the word forfaiting is used to describe a transaction in which up to 100 percent of an import company’s receivables (the amount that the importer owes an exporter) are purchased (by a forfaiter) from the exporter in exchange for a cash payment. The debt is then collected from the importer by the forfaiter.
How Factoring Differs From Forfaiting
Although both types of financing involve the purchase of account receivables, there are some marked differences between the two. While factoring involves account receivables of short-term maturities, forfaiting involves account receivables of medium to long-term maturities.
In factoring, the cost of financing is typically borne by the seller, the costs of forfaiting are generally borne by the buyer.
There are pros and cons to both types of financing and it’s important that you speak with a qualified factoring company before deciding which is right for you. Contact The Commercial Finance Group for more information today.
