What is Forfaiting

Forfaiting is a form of trade and supply chain financing.

It involves the purchase of future payment obligations on a “without recourse” basis.
Forfaiting can be applied to a wide range of trade related and even purely financial receivables and payment instruments. Although discounted receivables often have maturities over medium terms of 1 to 3 years they can be as short as 1 month or as long as 10 years.
Forfaiting is a flexible discounting technique that can be tailored to the needs of a wide range of counterparties and domestic and international transactions. Its key characteristics are:

• 100% financing without recourse to the seller of the debt
• The payment obligation is often but not always supported by a bank guarantee
• The debt is usually evidenced by a legally enforceable and transferable payment obligation such as a bill of exchange, a promissory note, a letter of credit or a note purchase agreement.
• Transaction values can range from US$100,000 to US$200 million
• Debt instruments are typically denominated in one of the world’s major currencies, with Euro and US Dollars being most common.
• Finance can be arranged on a fixed or floating interest rate basis