Mitigating Techniques for Commercial Risk/Forfaiting-Transference

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Globe for WikiEducator.jpg Unit 3.5- Mitigating Techniques for Commercial Risk 

Introduction | Commercial Banks | Loans | Letter of Credit | Draft Collection | Accounts Receivable | Governments | Factoring | Forfaiting | Banker's Acceptances | Credit Insurance | Summary | Resources | Activities | Assessment


The name forfaiting is derived from the French term for the technique a forfait. It refers to the concept that a seller forfeits the right to a future payment on a receivable in return for immediate cash. This may sound similar to factoring. The objective of a forfaiter is to purchase such financial instruments at a low price and sell them at a high price, garnering a trading profit in the process. Frequently, forfaiters require that these instruments be avalized (guaranteed) by a buyer's bank, thereby enhancing marketability.

Because there is little potential profit in small transactions and because buyers balk at signing promissory notes and obtaining bank avals on short-term transactions, forfaiters tend to find a niche in medium-term transactions, such as capital goods.