Forfaiting for Medium-Term Export Finance

Forfaiting for Medium-Term Export Finance#

Forfaiting: sell medium-to-long-term receivables (typically backed by LC, bank guarantee, or promissory note) to a forfaiter at a discount. The forfaiter assumes all payment and political risk. Used for capital goods exports where payment terms are 1-7 years. Discount rate: LIBOR/SOFR + country risk premium (1-8%). No recourse to the exporter if the buyer defaults.

Structuring a Forfaitable Transaction#

Requirements: receivable must be evidenced by a negotiable instrument (draft, promissory note), guaranteed by a bank (aval or LC), and denominated in a major currency. Amount: typically $100K to $50M. Process: negotiate sale terms with buyer, obtain bank guarantee, present instruments to forfaiter, receive cash (minus discount). Timeline: 2-4 weeks from submission to funding.

Forfaiting vs Other Export Finance Options#

Forfaiting vs LC discounting: forfaiting covers longer tenors (1-7 years vs 90-180 days) and removes all risk. Forfaiting vs ECA-backed loans: forfaiting is faster (weeks vs months) but more expensive. Forfaiting vs factoring: forfaiting covers single large transactions, factoring covers revolving short-term receivables. Choose forfaiting for capital goods exports with 1-5 year payment terms.

• Forfaiting converts medium-term receivables (6 months to 7 years) into immediate cash without recourse