Forfaiting is the non-recourse purchase of medium- or long-term trade receivables, commonly arising from exports of capital goods, commodities or large projects. The exporter sells future payment obligations at a discount. Bills of exchange, promissory notes or bank-supported obligations may evidence the debt.
How does Forfaiting work in practice?
The exporter sells medium- or longer-dated payment obligations to the forfaiter, commonly without recourse for the buyer’s covered credit risk. The receivables may be evidenced by bills, notes or deferred-payment obligations and can carry a bank guarantee or aval. The forfaiter discounts future payments to a present amount after reviewing the instruments, obligors and country risk.
What should a business document for Forfaiting?
Keep the commercial contract, debt instruments, bank guarantee or aval, assignment, discount calculation, delivery evidence and payment schedule.
What should a business verify before relying on Forfaiting?
Non-recourse protection depends on valid documents and representations. Performance disputes, fraud or documentation defects may remain with the exporter.
