Export factoring and forfaiting: getting paid early on credit sales

Updated 2 Oct 2026

This guide is for exporters who sell on credit and want their money before the buyer pays. It explains international factoring, forfaiting for longer credit periods, where TReDS and GIFT City platforms fit, EXIM Bank's role, and how recourse and cost compare.

Factoring and forfaiting compared

	Export factoring	Forfaiting
Typical use	Regular short-term open account or DA sales, many invoices	Single larger transactions on medium-term credit, such as capital goods
What is sold	Invoices (receivables)	Bills of exchange or promissory notes, usually guaranteed (avalised) by the buyer's bank, or deferred payment LCs
Recourse to you	With or without recourse	Normally without recourse
Rules	FCI General Rules for International Factoring	ICC Uniform Rules for Forfaiting (URF 800)

How international factoring works

Most cross-border factoring uses the two-factor system run through FCI, the global association of factoring companies. Your factor in India (the export factor) works with a factor in the buyer's country (the import factor) under FCI's rules.

You agree a factoring facility with an export factor and name the buyers you want covered.
The import factor assesses each buyer and sets a credit limit.
You ship on open account and assign the invoice to the factor. The invoice tells the buyer to pay the import factor.
The export factor advances part of the invoice value at once; FCI describes advances of up to 80%.
The import factor collects from the buyer and remits to the export factor, which pays you the balance less charges.
If an approved buyer has not paid 90 days after the due date and there is no dispute about the goods, the import factor pays under FCI's rules.

Recourse or non-recourse

With recourse, the factor can recover the advance from you if the buyer does not pay, so you keep the credit risk and gain only cash flow. Without recourse, the factor takes the risk of the buyer's insolvency or non-payment within the approved limit. Non-recourse does not cover disputes: if the buyer refuses to pay because of quality or short shipment, the factor can come back to you.

RBI's Master Direction on Export of Goods and Services lets AD banks enter into export factoring on a non-recourse basis, with the export factor closing the export bill in the Export Data Processing and Monitoring System (EDPMS). Agree with your bank and factor how the bill will be closed in EDPMS, because realisation rules still apply.

Who offers export factoring in India

Banks and NBFC-Factors registered with RBI under the Factoring Regulation Act, 2011.
ECGC runs an Export Factoring Facility for MSMEs (enquiries to its factoring department in Mumbai).
India Exim Finserve IFSC Pvt Ltd, EXIM Bank's subsidiary in GIFT City, launched in August 2023 to offer export factoring.
International Trade Financing Services (ITFS) platforms in GIFT IFSC, regulated by IFSCA (see below).

TReDS and the GIFT City route

TReDS, the RBI-regulated Trade Receivables Discounting System, is for MSME suppliers discounting invoices on buyers in India. It is not a route for invoices on overseas buyers. For export receivables, IFSCA has set up ITFS platforms in GIFT IFSC, where exporters can put invoices or bills up for factoring, forfaiting or bill discounting and financiers bid for them. IFSCA first issued the framework in July 2021 and replaced it with revised guidelines in December 2024. Some ITFS platforms are run by affiliates of TReDS operators, which is a source of the confusion.

Forfaiting for medium-term credit

When a buyer wants to pay over one to several years, for example for machinery, forfaiting lets you sell the guaranteed bills or notes at a discount and receive the cash at once, usually without recourse and at a fixed rate. RBI's master direction permits EXIM Bank and AD Category I banks to undertake forfaiting of export receivables, and allows the commitment fee and service charges payable by the exporter to be remitted through your AD bank, either upfront or monthly. The forfaiter will want a guarantee or aval from an acceptable bank in the buyer's country, so settle this when you negotiate the contract.

EXIM Bank's role

Besides forfaiting and its factoring subsidiary, EXIM Bank runs a Trade Assistance Programme that gives credit enhancement, such as standby LCs, guarantees and risk participation, so that commercial banks can support trade with markets where bank lines are limited. Ask your bank whether it can use the programme for an LC from a less familiar bank.

Costs

Discount charge: interest on the amount advanced, for the period until payment.
Service fee: for credit checks, collection and ledger management, usually a percentage of invoice value; the import factor's fee is often included.
Forfaiting charges: the discount rate, plus a commitment fee for the period between agreeing the deal and receiving the paper, and documentation charges.

Compare the all-in cost with post-shipment bank credit plus an ECGC policy. Under the Export Promotion Mission, DGFT Trade Notice 25/2025-26 of 20 February 2026 began a pilot of 2.75% interest subvention on the interest cost of export factoring for MSMEs, capped at ₹50 lakh per MSME per financial year. It covers recourse and non-recourse factoring in rupees or freely convertible currencies by RBI- or IFSCA-regulated factors. You must file a declaration of intent online and obtain a unique identification number before you avail of the factoring. Check with DGFT and your factor that the pilot is still running.

Watch out for

Assuming non-recourse protects you against quality disputes.
Buyers paying you directly after the invoice has been assigned; pass the money to the factor at once.
Factoring agreements that let the factor reduce buyer limits without notice; check before each shipment.

Related on Exportsmitra

Sources

Last checked 1 October 2026. Rules change: confirm with your bank, factor or DGFT before you act.

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Our guides are drafted with the help of AI and checked against official sources, but rules change often and mistakes can slip through. Please confirm with DGFT, CBIC, RBI, ECGC or your bank before you act. General information only, not legal or financial advice.