Money & Finance › Payments & money movement › Trade finance and payment guarantees: getting paid safely
Factoring and forfaiting: selling receivables for cash now
· Asset or instrument
Fact, law or dataA rule, statute, definition or measured number.
A business sells its unpaid invoices to a finance firm at a discount to get cash now instead of waiting 30–90 days.
See it on the Money & Finance map →How it works
In factoring, the factor advances about 70–90% of an invoice's face value, collects from the customer, then pays the rest minus a fee, often 1–3% per month outstanding. With recourse, the seller covers bad debts; without recourse, the factor does. Forfaiting is the export version for bigger, longer deals: a forfaiter buys bank-guaranteed notes or accepted drafts, typically six months to several years, at a fixed discount and without recourse. Worldwide factoring runs roughly €3.5–4 trillion a year (FCI estimates).
Why it matters
It funds companies whose best asset is their customers' credit, such as small suppliers to big retailers, and frees exporters from waiting on foreign buyers.
Think of it like
Like selling next year's rent roll to an investor for a lump sum: you give up part of the income to get cash today.
Facts, rules and data
FCI (the global factoring association) annual statistics, UCC Article 9, which governs sales of receivables, and court filings in failures such as Greensill Capital (2021) and First Brands (2025).
Debates and risks
How often the same invoice is sold twice or invented outright; fraud of that kind is alleged in several large collapses.
Connections (4)
▸Factoring and forfaiting: selling receivables for cash now is a receivables-based alternative to Business loans: credit lines, C&I term loans, equipment and ABLFact, law or data
The connection
A bank line or asset-based loan lends against receivables: the business borrows about 80–85% of eligible invoices and stays both owner and debtor. Factoring sells the invoices outright, so approval rests on the customers' credit, not the seller's. That suits young or thinly capitalized firms, but at an annualized cost often far above a bank line's.
When and why
Across US small and midsize businesses, especially trucking, apparel, staffing and manufacturing; banks and finance companies offer asset-based loans, specialist firms offer factoring.
How we know
UCC Article 9 covers both sales and pledges of receivables, with filings in state records; lender materials and FCI data show the two compete for the same borrowers.
Debates and risks
When a 'sale' of invoices is really a disguised loan is often disputed, a question courts face in bankruptcies and in usury and licensing cases.
▸Documents against acceptance (D/A): sign a draft, pay later creates drafts that can be sold via Factoring and forfaiting: selling receivables for cash nowFact, law or data
The connection
An accepted draft is a clear, transferable claim, so an exporter can sell it to a bank or forfaiter for cash now, at a discount. If the importer's bank adds its 'aval', a signed guarantee on the draft, forfaiters will usually buy it without recourse, taking the risk off the exporter.
When and why
Common in exports of capital goods to emerging markets; London, Zurich and Singapore are forfaiting centers.
How we know
The ICC Uniform Rules for Forfaiting (URF 800, 2013) and banks' forfaiting product terms.
Debates and risks
How well forfaiting prices reflect country risk is hard to judge, since most deal data are private.
▸Factoring and forfaiting: selling receivables for cash now is increasingly funded by Private credit fundsMainstream view
The connection
Banks once supplied most receivables finance. Since the 2010s, private credit and 'asset-based finance' funds buy invoices directly or fund factoring and supply-chain finance platforms, earning steady short-term yields. The model works only if the invoices are real and customers pay into accounts the fund controls.
When and why
In the US and Europe from the 2010s; the failures of Greensill Capital (2021) and First Brands (2025) exposed the risks.
How solid is the link?
First Brands' bankruptcy filings, listing about $2.3 billion of factoring-related liabilities, and Jefferies' disclosure of about $715 million of receivables in its Point Bonita fund.
Debates and risks
Whether First Brands' invoices were faked or sold more than once, as January 2026 federal charges against its founder allege, and how many other funds hold similarly weak claims.
▸Factoring and forfaiting: selling receivables for cash now funds exporters selling on open account in Trade finance and payment guarantees: getting paid safelyFact, law or data
The connection
Most world trade runs on open account, so exporters wait 30–90 days for payment and bear the buyer's risk. Export factoring pays them early; in the 'two-factor' system, an import factor in the buyer's country checks the buyer's credit and collects. It replaces an LC with a cheaper, invoice-based arrangement.
When and why
Worldwide; FCI, founded in 1968, links export and import factors across about 90 countries.
How we know
FCI's General Rules for International Factoring and its annual volume statistics.
Debates and risks
How much trade credit insurance and factoring together fill the gap left by shrinking letter-of-credit use.