Forfaiting
Specialized financing allowing exporters to sell receivables at a discount to improve liquidity, converting future payments into immediate cash resources.
What is Forfaiting?
Forfaiting is a specialized trade finance technique where an exporter sells trade receivables (typically medium- to long-term instruments like time drafts or promissory notes) to a financial institution (forfaiter) at a discounted price. The exporter receives immediate cash while the forfaiter assumes the credit risk and collects from the buyer at maturity.
Forfaiting is particularly valuable for exporters engaged in capital equipment sales, turnkey projects, or transactions with extended credit periods where upfront cash is essential.
This mechanism enables exporters to offer competitive credit terms to buyers while maintaining strong cash flow, ultimately supporting market competitiveness and transaction viability.
Forfaiting Structures
Receivable Discounting
Exporter sells trade receivables to a forfaiter at a discount, immediately converting future payments into present cash.
Liquidity Benefits
Immediate access to funds without waiting for payment, enabling working capital reinvestment and operational expansion.
Institutional Structures
Sophisticated financing arrangements designed for institutional players and high-value international trade transactions.
Forfaiting Transaction Process
Receivable Origination
Exporter issues invoice/time draft to buyer under agreed terms
Guarantee
Exporter obtains bank guarantee or aval on the instrument
Forfaiting Proposal
Exporter presents guaranteed receivable to forfaiter for purchase
Price Negotiation
Forfaiter quotes discount rate and terms of purchase
Settlement
Forfaiter purchases receivable and advances funds to exporter
Collection
Forfaiter collects payment from buyer at maturity
Advantages & Key Considerations
Exporter Advantages
- Immediate cash conversion
- Competitive credit terms to buyers
- Strong balance sheet liquidity
- Credit risk transfer
- Off-balance-sheet financing
Cost & Requirement Factors
- Discount cost (typically 1-5% p.a.)
- Bank guarantee requirement
- Minimum transaction sizes apply
- Buyer creditworthiness critical
- Medium to long-term receivables
Considering Forfaiting Solutions?
Contact Multistream International to explore forfaiting structures and receivable financing options.