forfaiting

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Forfaiting

A form of factoring that involves selling large, medium to long-term receivables to buyers (forfaiters) who are willing and able to bear the costs and risks of credit and collections.

Forfaiting

In international trade, the selling of an exporter's receivables for a particular transaction. It is similar to factoring except in scope. While a company sells all of its accounts receivable in factoring, an exporter only sells one receivable for one, perhaps high risk, transaction. In forfaiting, the buyer is known as a forfaiter, and assumes all the risks associated with collecting the receivables. Generally, the exporter forfaits the receivable at a discount. This improves cash flow but reduces income.

forfaiting

the provision of finance by one firm (the forfaiter) to another firm (the client) by purchasing goods the client has pre-sold to a customer but for which he has not yet been paid. The forfaiter (which often is a subsidiary of a commercial bank or a specialist firm) buys the client's goods at a discounted cash price, thus releasing ready money for the client to use to finance his WORKING CAPITAL requirements. The forfaiter then arranges to collect the payment when due from the customer to whom the goods have been sold, thus also saving the client the paperwork involved.

Forfaiting extends to both domestic and export sales. It can be especially useful in the latter context in the case of expensive capital equipment involving long delivery dates, and where there are possible complications arising from dealing with relatively unknown customers, exchange rate fluctuations, etc. See EXPORTING.

forfaiting

the provision of finance by one firm (the forfaiter) to another firm (the client) by purchasing goods that the client has presold to a customer but for which he has not yet been paid. The forfaiter (which often is a subsidiary of a commercial bank or a specialist firm) buys the client's goods at a discounted cash price, thus releasing ready money for the client to use to finance his WORKING CAPITAL requirements. The forfaiter then arranges to collect the payment when due from the customer to whom the goods have been sold, thus also saving the client the paperwork involved.