Factoring is a form of Receivables Purchase, in which sellers of goods and services sell their receivables (represented by outstanding invoices) at a discount to a finance provider (commonly known as the ‘factor’). A key differentiator of Factoring is that typically the finance provider becomes responsible for managing the debtor portfolio and collecting the payment of the underlying receivables.
Forfaiting is a form of Receivables Purchase, consisting of the without recourse purchase of future payment obligations represented by financial instruments or payment obligations (normally in negotiable or transferable form), at a discount or at face value in return for a financing charge.
A convenient intermediate category of SCF techniques, which includes SCF techniques such as Receivables Discounting, Forfaiting, Factoring, and Payables Finance and includes a range of synonyms and variations.
Pre-shipment Finance is a loan provided by a finance provider to a seller of goods and/or services for the sourcing, manufacture or conversion of raw materials or semi-finished goods into finished goods and/or services, which are then delivered to a buyer.
Loan or Advance Against Inventory is financing provided to a buyer or seller involved in a supply chain for the holding or warehousing of goods (either pre-sold, un-sold, or hedged) and over which the finance provider usually takes a security interest or assignment of rights and exercises a measure of control.
Distributor Finance is the provision of financing for a distributor of a large manufacturer to cover the holding of goods for re-sale and to bridge the liquidity gap until the receipt of funds from receivables following the sale of goods to a retailer or end-customer.
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A loan makes available money to another party in exchange for future repayment of the principal amount with interest or other finance charges. A loan may be for a specific, one-time amount or can be available as a variable credit line or overdraft up to a specified ceiling amount. It is also possible to make loans of actual real and financial assets.
The standby letter of credit performs a similar function to a bank guarantee but operates on the principles of a letter of credit, SBLC is a guarantee that is made by a bank on behalf of a client, which ensures payment will be made in case their client does not honor the payment commitment.
The purpose of a payment Guarantee is to cover the Applicant/Instructing Party’s ability to meet its payment obligations and the most common type covers the buyer’s obligation to pay for goods received or services rendered. Once the Beneficiary has performed the contract by delivering the goods or by completing the work (and the buyer does not meet its payment obligation, due to a lack of ability or a willingness to pay), the Beneficiary may demand payment under the Guarantee, usually for the full amount of the contract or, in case of down payment already settled, for the outstanding amount.
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