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CS Professional · Strategic Management and Corporate Finance · Raising of Funds - Non Fund Based

Which feature distinguishes forfaiting from ordinary domestic invoice factoring?

Forfaiting usually discounts medium-term export receivables, evidenced by bills of exchange or promissory notes, without recourse to the exporter. Factoring, by contrast, mainly deals with short-term open-account receivables and bundles ledger administration and collection services. Forfaiting transfers the credit and country risk to the forfaiter.

  1. AForfaiting is done only on short-term trade receivables of under 30 days
  2. BForfaiting involves the seller keeping the credit risk of the importer
  3. CForfaiting usually involves discounting medium-term export receivables, evidenced by bills or promissory notes, without recourse to the exporterCorrect
  4. DForfaiting includes sales ledger administration and collection services for the seller

Explanation

Forfaiting is typically used for export of capital goods, with medium-term receivables represented by bills of exchange or promissory notes, usually avalised by the importer's bank. They are discounted without recourse to the exporter. Ledger administration is a factoring service, not a forfaiting one, and short-term focus is wrong.

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