Export Factoring Glossary — Key Terms Explained

Fifteen terms an exporter runs into when evaluating export factoring, defined in one place. Each definition stands alone — no need to read them in order. For the full mechanics of how a deal moves from invoice to cash, see Export Factoring: Get Paid Now, Not in 90 Days; for a longer answer to any of these, see the FAQ.

Export factoring

The sale of an exporter's unpaid overseas invoices to a finance provider in exchange for an upfront cash advance, with the balance released — less charges — once the overseas buyer pays. The exporter gets paid on shipment or invoicing rather than 60–120 days later when the buyer settles.

Recourse factoring

A structure where, if the overseas buyer fails to pay, the finance provider can require the exporter to refund the advance or make good the shortfall. The exporter still carries the ultimate credit risk on the buyer — recourse factoring primarily solves a cash-flow timing problem, not a credit-risk problem.

Non-recourse factoring

A structure where, on an eligible invoice, the finance provider — not the exporter — absorbs the loss if the overseas buyer fails to pay because of insolvency or protracted default, subject to the facility's terms and, where used, the underlying credit insurance policy. Non-recourse is assessed per buyer and often per invoice, not applied as a single facility-wide switch — some buyers or invoices qualify and others don't. It does not cover a genuine commercial dispute over the goods or services delivered.

Two-factor factoring

An export factoring structure that uses two factors — one in the exporter's country, one in the buyer's country — to handle collections and credit assessment on the buyer's home turf, coordinated through the FCI (Factors Chain International) two-factor system used internationally. It's most relevant where local knowledge of the buyer's market materially improves collection and credit assessment; not every export factoring deal uses this structure.

Single-factor / direct factoring

An export factoring structure where one finance provider handles the whole transaction directly with the overseas buyer, without a second, buyer-country factor in the chain. Simpler to administer than two-factor factoring, and the more common structure where the finance provider already has direct visibility into the buyer's creditworthiness and jurisdiction.

Forfaiting

The discounted, non-recourse purchase of a single, longer-tenor trade receivable — usually evidenced by a bill of exchange, promissory note or letter of credit, and often used for capital goods or project exports. Forfaiting is a one-off transaction per receivable, unlike factoring, which is an ongoing, revolving facility.

Forfaiting vs. factoring

Forfaiting covers a single, typically longer-tenor receivable on a non-recourse basis; factoring typically covers a revolving book of shorter-tenor, open-account invoices and can be structured with or without recourse. If your business raises one large receivable per deal, forfaiting is the closer fit; if you're issuing a steady stream of shorter-tenor invoices, factoring usually is.

Open account (trade terms)

A trade arrangement where the exporter ships goods or delivers services and invoices the buyer for payment at a later date, without requiring a letter of credit or other bank-issued payment instrument upfront. Open account is the trade term export factoring is built to serve — it converts the wait for payment into upfront cash without requiring the buyer to open an LC for every order.

Notice of Assignment (NOA)

A formal notice sent to the overseas buyer stating that the exporter has assigned the receivable to the finance provider and that payment should now be made to the finance provider's account. In a standard disclosed (notified) structure, the buyer is informed and pays the assignee directly — this is routine in international trade finance, not a signal of financial distress.

Disclosed (notified) factoring

A factoring structure in which the overseas buyer is formally notified, via a Notice of Assignment, that the receivable has been sold and payment should go to the finance provider. The more common structure in international export factoring.

Undisclosed (non-notified) factoring

A factoring structure in which the overseas buyer continues to pay the exporter's usual collection account and is not notified that the receivable has been sold. Less common than disclosed factoring, and its availability depends on the facility and jurisdiction.

Buyer credit limit

The maximum exposure a finance provider sets for a specific overseas buyer, based on credit reports, trade references, payment history and, where applicable, a credit insurer's own underwriting. Invoices are funded up to that limit; a limit can be reviewed, reduced or withdrawn if the buyer's condition, payment behaviour or country risk changes.

Advance rate

The percentage of an invoice's face value that the finance provider releases to the exporter upfront, on an eligible invoice, with the remaining balance — less charges — released once the buyer pays. On eligible invoices, an advance of up to 85% of the invoice value is available; the exact percentage for a specific invoice depends on the buyer, the market and the invoice itself, and is confirmed after review — the same figure already published on the About page and in the FAQ.

Credit insurance (trade credit insurance)

An insurance arrangement that, where bound on an eligible non-recourse deal, indemnifies a portion of an insured loss arising from an overseas buyer's insolvency or protracted default, subject to the policy's own terms, waiting periods and exclusions. Credit insurance typically indemnifies a majority of the insured loss rather than the full invoice value, and it does not cover a genuine commercial dispute over the goods or services delivered.

Commercial dispute risk (vs. buyer credit risk)

Buyer credit risk is the risk that the buyer is willing but unable to pay — insolvency, protracted default, political or transfer risk. Commercial dispute risk is a disagreement over whether the goods or services were delivered as contracted — short shipment, quality claims, late delivery. Non-recourse treatment and credit insurance address buyer credit risk; they generally exclude a genuine commercial dispute, which is why documentation quality (proof of delivery, buyer acceptance) matters before an invoice reaches maturity.

Working through which of these applies to your business? Speak to our export finance team →