What is the Forfaiting?

The forfaiting is a way to obtain financing for companies and SMEs. Similar to factoring, forfaiting is based on the assignment of various payment documents, such as letters or promissory notes to a financial institution.

It is a mechanism commonly used in transactions that involve export. With the forfaiting, the exporting company can advance the collection of the transactions it makes to other companies outside the country. Financial institutions usually prefer to apply forfaiting to a reduced number of operations, since for their approval a study of the solvency of the debtor, the forfaiting is indicated for few operations of great volume.

Features of forfaiting

These are the main characteristics of forfaiting as a means of financing in a company.

  • Full transfer of risk. By transmitting the right to collection, the company also transmits the risk of non-payment to the financial institution. Who in turn assumes the collection management even if it produces an unpaid payment.
  • Collection rights. The forfaiting is instrumented through real collection rights such as the bills of exchange or promissory notes. Therefore, in this case, the collection of invoices cannot be advanced as occurs with factoring.
  • Interest or currency fluctuations. One of the most interesting characteristics of forfaiting is that it eliminates the risk of interest or currency fluctuations in export collection operations.
  • Administrative management. Forfaiting significantly reduces the burden and costs of administrative management of the company. By referring the administration and collection management tasks to the financial institution.
  • Improved liquidity. With the forfaiting, the collection of certain financial operations. Allowing this to be done with an immediate disposition of funds. This causes an immediate improvement in liquidity in the company.

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