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GLOSSARYTERMS AS A CREDIT DESK USES THEM

Forfaiting

What is forfaiting in export finance, and who carries the risk?

ONE OF 366 TERMS · FREE · NO SIGNUP

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED

// THE SHORT ANSWER

Forfaiting is the purchase, without recourse to the exporter, of export receivables due months or years ahead, usually bills of exchange or promissory notes guaranteed by the importer's bank, or payments due under a deferred-payment letter of credit. The exporter is paid at a discount and keeps only the risk that the claim itself is invalid; the forfaiter takes the buyer's credit risk and the country risk, and can sell the paper on. A US$1 million note due in 180 days, discounted at 6% a year on a 360-day basis, pays the exporter US$970,000 today. The ICC's Uniform Rules for Forfaiting (URF 800) govern deals that adopt them.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.

// WHAT IT IS NOT

Invoice discounting usually advances against short-term invoices with recourse to the seller; forfaiting buys longer-dated, bank-backed paper outright.

// WORKED IN

// NEXT TO IT

RECEIVABLES AND TRADE

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