Forfaiting

Not to be confused with Forfeiting (disambiguation).

In trade finance, forfaiting is a service providing medium-term financial support for export/import of capital goods. The third party providing the support is termed the forfaiter. The forfaiter provides medium-term finance to, and will commonly also take on certain risks from, the importer; and takes on all risk from the exporter, in return for a margin. Payment may be by negotiable instrument, enabling the forfaiter to lay off some risks.[1] Like factoring, forfaiting involves sale of financial assets from the seller's receivables. Key differences are that forfait supports the buyer (importer) as well as the seller (exporter), and is available only for export/import transactions and in relation to capital goods.[2] The word forfaiting is derived from the French word forfait, meaning to relinquish the right (in this case, the exporter's right to receive payment from the customer — the importer).[3]

  1. ^ A.I. Trade Finance, Inc. v. Laminaciones de Lesaca, S.A., 41 F.3d 830 (2d Cir. 1994).
  2. ^ J. Downes, J.E. Goodman, "Dictionary of Finance & Investment Terms", Baron's Financial Guides, 2003; and J.G. Siegel, N. Dauber & J.K. Shim, The Vest Pocket CPA, Wiley, 2005.
  3. ^ Treasury Today, Forfaiting Archived 2018-12-30 at the Wayback Machine, published September 2008, accessed 7 July 2018