Forms of Short-term Financing/Forfaiting

Forfaiting
Forfaiting is defined as the discounting of medium–term promissory notes or drafts issued by a foreign buyer. Banks forfait larger transactions over a longer period of time. These transactions are backed by the maturing promissory notes. Banks also prefer that the drafts or promissory notes be avalized by the issuing bank, thus providing a guarantee from the avalizing bank. The benefit to the importer is the receipt of a discounted cash payment for the sale with the bank assuming responsibility for the collection of the promissory notes or drafts. Forfaiting is mainly used to finance equipment and relates to specific transactions.