Differentiate between the following: Forfaiting and Export Factoring

Forfaiting is similar to cross border factoring or export factoring to the extent both have common features of non recourse and advance payment. But they differ in several important respects: A forfaiter discounts the entire value of the note/bill but the factor finances between 75-85% and retains a factor reserve which is paid after maturity. The availing bank which provides an unconditional and irrevocable guarantee is a critical element in the Forfaiting arrangement whereas in a factoring deal, particularly non-recourse type, the export factor bases his credit decision on the credit standards of the exporter. Forfaiting is a pure financing arrangement while factoring also includes ledger administration, collection and so on. Factoring is essentially a short term financing deal. Forfaiting finances notes/bills arising out of deferred credit transaction spread over three to five years. A factor does not guard against exchange rate fluctuations; a forfaiter charges a premium for such risk.