## Forfaiting: Export Financing Without Recourse
### What is Forfaiting?
Forfaiting is a form of export financing where the exporter sells the rights to trade receivables (typically medium- to long-term) to a forfaiter and receives instant cash, on a non-recourse basis.
### Salient Features
1. Motivates exporters to explore new geographies — payment is assured.
2. Deferred payment for importer — overseas buyer can import goods/services on deferred payment terms.
3. Reduced transaction costs — exporter avoids the complexities of international trade transactions.
4. Frees up working capital — exporter can scale operations using cash received upfront.
5. Competitive import financing — importers avail forfaiting from international financial institutions at competitive rates.
### Factoring vs Forfaiting — Comparison
| Particulars | Factoring | Forfaiting |
|---|---|---|
| Meaning | Sale of receivables to a factor for immediate cash | Export financing: exporter sells rights to trade receivables to a forfaiter for instant cash |
| Recourse | May be Recourse OR Non-recourse | Always Non-recourse |
| Amount paid | 80% – 90% upfront | 100% of value of exported goods |
| Type of receivables | Domestic OR international | International only |
| Who bears cost | Seller (factor commission/fees) | Overseas buyer bears the forfaiting cost |
| Secondary market | None — transaction complete once sold | Yes — receivables can be traded, enhancing liquidity |
### Quick Memory Trick
FORFaiting → FOReign + Full payment + non-Recourse + Full secondary market
Factoring → domestic-friendly, partial advance, may have recourse