FORFAITING

FORFAITING

The term forfeiting is a form of financing. It is used in the international business financing. International trade receivables are purchase by banks or financial institution the purchase is in the form of discounting the documents covering the entire risk of nonpayment of collection. The problems relating to credit risk are fully responsibility of the forfaiter who pays cash to the seller after discounting the bills/notes.

                                            DIFFERENCE BETWEEN FORFAITING VS. EXPORT FACTORING

       

1.       A forfaiter discounts entire value of the note/bill. Whereas in a factoring only 70-80% financing is available of the bill/note.

2.       Factoring is a short-term financial deal. Forfeiting spreads over 3-5 years.

3.       Forfaiting is a pure form of financing. Whereas factoring  is a ledger administration as well as collection.

4.       The forfaiter provides finance on the basis of financing standing of the availing bank. On the other hand in a factoring deal the export factor bases his credit decision on the credit standing of the exporter.