a. Export Factoring is a financial service where an exporter sells its foreign accounts receivable (invoices) to a factor (bank or specialized firm) at a discount for immediate cash, with the factor assuming credit risk, collection, and administration of the overseas debts. It provides up to 80-90% advance, non-recourse protection against buyer default (per IFG rules), and is ideal for SMEs in Ghana under AfCFTA, aligning with BoG’s export promotion via ECGC integration; e.g., used in textile exports to EU, reducing risk from payment delays.

b. 8 differences between factoring and invoice discounting:

• Credit Risk: Factoring is often non-recourse (factor bears bad debt risk), while invoice discounting is recourse (seller retains risk and repays if buyer defaults), impacting exporter liability in Ghanaian trades.
• Collection: Factor handles debt collection and ledger management in factoring, whereas in invoice discounting, the seller manages collections, maintaining customer relationships.
• Disclosure: Factoring notifies buyers of assignment (transparent), but invoice discounting is confidential (buyers unaware), suiting sensitive relationships per BoG confidentiality norms.
• Advance Rate: Factoring advances 70-90% of invoice value, invoice discounting 80-95%, but factoring includes services deducting more fees.
• Service Scope: Factoring provides full services (credit check, administration), invoice discounting is finance-only, without extras, cheaper for large firms.
• Cost Structure: Factoring fees higher (1-3% + interest) for services, invoice discounting lower (interest only, 0.5-2%), affecting profitability in export deals.
• Suitability: Factoring suits smaller exporters needing risk cover (e.g., Ghanaian cocoa to Europe), invoice discounting for established firms with strong credit control.
• Legal Assignment: Factoring requires legal assignment of receivables (under English/Ghanaian law), invoice discounting often equitable, with less formal transfer.