Back to Previous Page

Forfaiture, forfaiting:

: Forfaiture is the French word for forfeiting, i.e. 'to relinquish a right'. 

Forfaiture is a trade financing option for exporters.  Forfaiting companies purchase CREDIT INSTRUMENTS from exporters at less than the full value at maturity (at DISCOUNT) or for a fee, or for a combination of each depending on the conditions of the credit instrument and the arrangements between the client and forfaiter.  By doing this, the forfaiting company assumes the risk of collection.  If the importer does not pay, it is no longer the exporter's problem.

    Since the forfaiting company assumes all the risks of collection, the rules for purchasing credit instruments are stringent, and the forfaiting company has the option of holding the instruments until maturity or selling them to another investment entity.  At maturity, each instrument is presented to the importer's bank for collection.

Forfaiting is the same as factoring, whereby a company sells its accounts receivable (invoices) to a factor who collects the amount due, retains a percentage of that amount, and remits the balance to the originator of the invoice.  The difference is that trade documents are usually far more complex than the average invoice.

    To learn more about forfaiting, its limitations and procedures, please refer to Forfaiting, A User's Guide: What Is It, Who Uses It, and Why?, London Forfaiting, and the International Forfaiting Association.

: Fraudsters would have you believe in the existence of "forfaiting banks" where one can discount LETTERS OF CREDIT, DEBENTURES, BANK GUARANTEES, and PROMISSORY NOTES and resell them at huge profits.

While many banks do have a Forfaiting Department, there is no such thing as a "forfaiting bank."

____