Forfaiting is a technique for arranging non-recourse medium-term export financing, used most frequently to finance imports into Eastern Europe. A third party, usually a specialized financial institution, guarantees the financing.
Forfaiting is the purchase by the forfaiter of an exporter’s accounts receivable, which are based on negotiable instruments such as Bill of Exchange and Promissory Notes.
In contrast to factoring, forfaiting involves a series of independent, medium to longer term obligations of higher value. The forfaiter purchases the bills on a non-recourse basis and assumes the commercial and political risk.
Forfaiting is a form of export finance in which the forfaiter accepts, at a discount from the exporter, a bill of exchange or promissory note (note) from the exporter’s customer; the forfaiter in due course collects payment of the debt. Such notes are normally guaranteed by the customer’s bank. Maturities of these are normally up to three years.