Forms of Short-term Financing/Forfaiting

Unit 7.1-Forms of Short-term Financing

Introduction | Preparing to Borrow | Vendor Financing | Documentary Collections | Bank Check | Personal Resources | Bank Financing | Export Credit Insurance | Guarantees | Ex-Im Bank Financing | SBA | Equity Investment | Earnings Requirments | Working Capital | Collateral | Resource Management | Primary Differences | Factoring | Forfaiting | Summary | Resources | Activities | Assessment Return to International Finance Module 7: Short-term Financing

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.

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