Forfaiting

Forfaiting is the without-recourse purchase of medium-term trade receivables, where a forfaiter buys an exporter’s deferred-payment claims at a discount and assumes the credit and country risk. The receivables are usually evidenced by bills of exchange, promissory notes, or amounts under a documentary credit, often backed by a bank aval or guarantee. The exporter receives immediate cash and removes the debt from its balance sheet, while the forfaiter collects from the importer at maturity. In ship and equipment trade it converts installment sale or yard receivables into present cash, with the discount rate reflecting tenor and obligor risk.