Images of US and Foreign Currency
Forfaiting
One way to improve cash flow is through forfaiting, a trade finance option exporters use to receive immediate cash after shipment.

Forfaiting

Forfaiting

Download Video: An Introduction to Forfaiting
[14MB]

Forfaiting is a method of trade finance that allows exporters to obtain cash by selling their medium and long-term foreign accounts receivable at a discount to a forfaiter, a spe­cialized finance firm or a department in a bank. Forfaiting can help exporters improve cash flow, particularly when pursuing sales to foreign buyers who depend on longer financing terms which can stretch for months or years.

Because forfaiting eliminates virtually all risk of non-payment for the exporter, the fees associated with forfaiting are often higher than other types of commercial lender financing. In the U.S., forfaiting is mainly used by established large and medium-sized corporations that export capital goods and commodities on transactions exceeding $100,000. Forfaiting can also offer opportunities in markets considered high-risk.

Most forfaiting transactions will have a maturity ranging between 180 days and seven years, the payment period for foreign buyers of U.S. exports. Forfaiters, not U.S. exporters, are responsible for collecting payments from foreign buyers.

This is how forfaiting works:

  1. Communicate with prospective importer - An exporter discusses a potential sale with an importer in need of extended credit terms.
  2.  Contact a forfaiter - An exporter should then approach a forfaiter early in the process before pricing negotiations with the importer. That way, the exporter can build the forfaiting cost into the  sale price.
  3. Present transaction details to forfaiter - The exporter presents details of the proposed sale and financing to the forfaiter. Typical details include name of buyer, type of goods being sold, date, duration, and currency of the contract, credit period, payment schedule, and evidence of debt.
  4. Sign commitment letter with forfaiter - Within days, the forfaiter evaluates the transaction and feasibility of the deal and determines a discounted price at which to purchase the accounts receivable. If the discounted price is accepted, the exporter signs a commitment letter issued by the forfaiter.

Since this payment is without recourse, the exporter has no further interest in the financial aspects of the transaction, and it is the forfaiter who must collect the future payments due from the importer.

×

Global Business Navigator Chatbot Beta

Welcome to the Global Business Navigator, an artificial intelligence (AI) Chatbot from the International Trade Administration (ITA). This tool, currently in beta version testing, is designed to provide general information on the exporting process and the resources available to assist new and experienced U.S. exporters. The Chatbot, developed using Microsoft’s Azure AI services, is trained on ITA’s export-related content and aims to quickly get users the information they need. The Chatbot is intended to make the benefits of exporting more accessible by understanding non-expert language, idiomatic expressions, and foreign languages.

Limitations

As a beta product, the Chatbot is currently being tested and its responses may occasionally produce inaccurate or incomplete information. The Chatbot is trained to decline out of scope or inappropriate requests. The Chatbot’s knowledge is limited to the public information on the Export Solutions web pages of Trade.gov, which covers a wide range of topics on exporting. While it cannot provide responses specific to a company’s product or a specific foreign market, its reference pages will guide you to other relevant government resources and market research. Always double-check the Chatbot’s responses using the provided references or by visiting the Export Solutions web pages on Trade.gov. Do not use its responses as legal or professional advice. Inaccurate advice from the Chatbot would not be a defense to violating any export rules or regulations.

Privacy

The Chatbot does not collect information about users and does not use the contents of users’ chat history to learn new information. All feedback is anonymous. Please do not enter personally identifiable information (PII), sensitive, or proprietary information into the Chatbot. Your conversations will not be connected to other interactions or accounts with ITA. Conversations with the Chatbot may be reviewed to help ITA improve the tool and address harmful, illegal, or otherwise inappropriate questions.

Translation

The Chatbot supports a wide range of languages. Because the Chatbot is trained in English and responses are translated, you should verify the translation. For example, the Chatbot may have difficulty with acronyms, abbreviations, and nuances in a language other than English.

Privacy Program | Information Quality Guidelines | Accessibility