Factoring is the discounting of a foreign account receivable that does not involve a draft. The exporter transfers title to its foreign accounts receivable to a
factoring house for cash at a discount from the face value.
Factoring is often done without recourse to the exporter. Export
factoring allows an exporter to ship on "open account," by which goods are shipped without guarantee of payment
(that is, a letter of credit). The
factor assumes financial ability of the customer to pay and handles collections on the receivables.
See: Factoring House Forfaiting.