Forfaiting

Forfaiting involves the purchase of receivables from exporters by a forfaiter. The forfaiter assumes the risk and responsibility of debt collection. This process provides the seller with immediate cash flow and eliminates credit risk.

Forfaiters purchase receivables, such as promissory notes, bills of exchange, and letters of credit. Buyers, such as banks and financial institutions, guarantee these financial instruments. Exporters benefit from non-recourse financing, immediate liquidity, and reduced administrative burdens.

Industries, including machinery manufacturing, construction, and shipping frequently use forfaiting. Transactions often involve medium to long-term credit, typically ranging from 180 days to five years. Countries with significant forfaiting activity include Germany, Switzerland, and the United States.

Forfaiting utilizes instruments, including avalized bills of exchange, promissory notes, and deferred-payment letters of credit. These instruments guarantee payment, shifting risk from exporters to forfaiters. Exporters achieve improved cash flow and offload credit risk to specialized financial entities.