How does forfaiting differ from factoring?

Forfaiting and factoring are financing arrangements that
are commonly used in cross-border transactions to allow a credit facility for the buyer
who can pay the seller over an extended period of time.

The
two though are not the same and there are several important differences between the
two.

In factoring only a part of the transaction amount is
financed, while forfaiting involves the financial institution providing finance for the
complete amount.

In factoring, the financial institution
representing the seller has to directly collect funds from the buyer, while in
forfaiting all the funds are collected from the bank representing the
buyer.

In factoring, credit is provided for a short
duration of time and the bank handles all the accounting procedures as repayment is
made. In forfaiting there is provision of the total amount and no further services are
provided by the financial institution. It is only concerned with collecting funds as
repayment of the credit extended is done.