What is Forfaiting
Forfaiting is a form of international supply chain financing. It involves the discount of future payment obligations on a without recourse basis.
Forfaiting can be applied to a wide range of trade related and purely financial receivables. Although discounted receivables typically have maturities over medium terms of 3 to 5 years they can be as short as 6 months 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 a legally enforceable and transferable payment obligation such as a bill of exchange, promissory note, letter of credit or 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.