International Factoring refers to a comprehensive financial service in which an exporter, when exporting under credit terms such as Open Account (O/A) or Documents against Acceptance (D/A), transfers accounts receivable to a factor (a bank or a professional factoring company). The factor provides services including importer credit investigation, bad debt guarantee, accounts receivable collection, and trade financing. The core scenario is when an exporter wants to expand sales but is concerned about the importer's credit risk or needs to recover funds in advance. Notes: The factor typically only assumes the importer's credit risk, not refusal to pay due to cargo quality or trade disputes; the exporter needs to have the importer's credit limit approved and should consider factoring costs (service fees and financing interest). Difference from Letter of Credit (L/C): Factoring is based on commercial credit, has simpler procedures and higher costs, but can address open account risks. Difference from export credit insurance: Factoring also provides financing and collection services, and purchases accounts receivable without recourse.
📝 Examples
1. Our company settles on O/A 60 days. To mitigate the risk of the importer defaulting, we have applied to Bank of China for international factoring and obtained 80% advance financing on the invoice amount. (Note: The exporter obtains financing and transfers credit risk through factoring.)
2. Since the importer has good credit, the factor approved a credit limit of USD 500,000, so we can confidently accept D/A 90 days payment terms. (Note: After the factor approves the limit, the exporter can flexibly use open account terms.)
💡 Foreign Trade Tips
Foreign trade terms are the foundation of international business communication
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