A type of factoring in which an exporter receives part or all of a set of services including intelligence, guarantee, collection and financing for the invoices issued to its overseas buyers (importers). A factoring house, or factor, may be a bank or a specialized financial company that provides financing through the purchase of invoices/ accounts receivable.

Guarantee service involves providing a guarantee for the accounts receivable assigned by the factor and/or correspondent factor within the limit allocated to the buyer, alleviating the risk that may arise from the buyer’s default (inability to pay invoices, etc.) Collection service and receivable management is all about monitoring/ collection of the accounts receivable and preparation of status reports to the seller; while financing service reflects advance payment, up to a certain level, of the assigned receivables to the seller before maturity date within the limits set by the factor.

Export factoring is a complete set of financial/ non-financial services that include export working capital financing, credit protection, overseas accounts receivable bookkeeping, and collection services. A factor and exporter enter into an agreement whereby the factor purchases the exporter’s short-term overseas accounts receivable for immediate payment at a discount from the face value, usually without recourse (non-recourse factoring).

The factor also takes up the risk on the potential inability of a foreign buyer to pay as per invoices, and manages collections on the invoices/ receivables. Thanks to an export factoring, an exporter can offer open account terms, have better liquidity position, and enhances competitiveness at a global level. In this sense, factoring foreign accounts receivables (export factoring) can provide a good alternative to credit insurance of exports, long-term bank financing, and costly short-term bridge loans.