Forfaiting

Sellers sell medium to long-term invoices under documentary collection terms to a Funder at a discount on a without recourse financing structure. This allows the Seller to receive cash payment for these medium and long-term invoices at a lesser value.

Forfaiting is normally structured either under a master agreement or through a written confirmation between Funder and Seller. The agreement will define a ‘true sale’, without recourse financing structure, meaning the rights and title to the invoice(s) are transferred to the Funder.  Under this structure, the Seller is no longer liable for Buyer risk of default. Forfaiting generally works with bills of exchange, promissory notes, or a letter of credit and suited for sale of capital goods, commodities, and large projects on medium and long-term credit (e.g. 180 days to seven years).  In most cases, the Buyers must provide a bank guarantee in the form of an aval, letter of guarantee or letter of credit.

In Forfaiting, receivables are normally guaranteed by the Buyer, which allows the Seller to take the transaction off the balance sheet to enhance key financial ratios.

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