What is export factoring? What services does a factor perform for an exporter?

What will be an ideal response?

A technique for financing exports that is closely related to forfaiting is export factoring. An export factor is a company that performs credit risk investigations and collects funds from the accounts receivable of other firms. In international trade, factors provide both these services to exporters. They may also provide financing of exporters' accounts receivable.
Factors perform several services for exporters. The primary service is credit investigation. During the negotiations between an exporter and a foreign importer, the exporter provides information to the factor about the potential importer and the nature of the deal under negotiation. The factor uses its network of local affiliates in various countries, which are usually in partnership with local banks, to perform a credit check on the importer. The factor may also be asked to provide a guarantee to the exporter, which stipulates that if the importer defaults, the factor pays the bill.
Factors give two types of credit approvals: order approvals and revolving credit lines. With an order approval, the factor provides the approval for a specific shipment by the exporter to an importer. With a revolving credit line, the exporter obtains advance approval for what is anticipated to be the maximum shipment to an importer for a given period of time. If the factor buys the receivables of the exporter at a discount, it is the responsibility of the factor to collect payment from the importer. The factor's local affiliate adheres to the standard collection practices in the particular countries involved.
If an exporter is small, a factor can also perform various accounting functions for the exporter. These include providing a monthly statement of cash flows, including all sales to the factor, commissions paid, and other debits and credits. The factor also provides statements of the credit lines outstanding for various importers, notices of disputes with any importers over specific invoices, and reports on outstanding risk exposures classified by importer and whether the factor guarantees the invoice.