Commercial risk
The buyer becomes unable or unwilling to pay at maturity. Assessed on the buyer’s standing, trading history and the strength of the payment instrument.
The instrument
Forfaiting, explained properly.
Forfaiting is the purchase of a payment obligation arising from a trade contract — bought outright, at a discount, normally without recourse to the seller. This page sets out how it works, what it covers, and where its limits are.
What forfaiting is
An exporter sells goods on deferred payment terms. The buyer’s obligation to pay — often evidenced by a bill of exchange, a promissory note or a letter of credit — is a financial asset. Forfaiting is the outright purchase of that asset, at a discount, for cash today.
Two features define it.
It is a sale, not a loan. You are not borrowing against the receivable and you are not pledging collateral. You are transferring ownership of an asset. That is why the receivable leaves your balance sheet rather than sitting on it alongside a new liability.
It is normally without recourse. In a without-recourse purchase, if the buyer does not pay at maturity, the loss belongs to the purchaser. The exporter is not asked to refund the money. This is the characteristic that separates forfaiting from discounting and from most factoring arrangements — and it is the reason the purchaser underwrites the buyer, not the seller.
How we structure it
Our standard structure is without recourse. Where the buyer, the country or the payment instrument does not support it, we structure with limited recourse — and we tell you which one applies at the indicative terms stage, before any agreement is drafted.
| Aspect | Without recoursestandard | Limited recourse |
|---|---|---|
| Non-payment at maturity | Syntagma bears the loss | Defined recourse to the exporter |
| Commercial risk | Syntagma | Shared, defined in the agreement |
| Political & transfer risk | Syntagma | Syntagma |
| Receivable on your balance sheet | Removed | Treatment depends on the structure |
| When you find out which applies | At the indicative terms stage — step 2 of 4, before any agreement is drafted | |
Nothing about the recourse position is discovered at maturity. It is stated in the indicative terms at step 2 of 4, and it is written into the agreement.
The three risks we take
They are assessed separately and they price separately, so we name them separately.
Political risk
Government action, conflict, expropriation or regulatory change in the buyer’s country prevents settlement. Assessed as country risk.
Transfer risk
The funds exist but cannot cross the border — currency controls, convertibility restrictions, or correspondent-banking limitations.
What we do not take
Performance risk under your own contract remains yours. If goods were not shipped, documents are defective, or the buyer raises a legitimate commercial dispute, that is a matter between you and your buyer. We underwrite the buyer’s ability and willingness to pay — not the underlying commercial performance.
How the discount works
The purchase price is the face value of the receivable less a discount. The discount reflects the tenor, the buyer’s credit standing, the country, the currency and the strength of the payment instrument. It is fixed at purchase.
Fixed at purchase means fixed. Once the transaction is priced and settled, you are not exposed to movements in interest rates between purchase and maturity, and you are not carrying the currency exposure on that receivable. Whatever happens to rates or to the buyer over the following 90 to 720 days, your proceeds do not change.
We do not publish a rate card. Pricing is transaction-specific and is issued as an indicative discount rate at step 2, once we have seen the contract and the buyer.
Instruments we work with
Bill of exchange
A written order requiring the buyer to pay a fixed sum at a determinable future date. Negotiable, transferable by endorsement, and enforceable on its own terms independently of the underlying contract.
Promissory note
A written promise by the buyer to pay a fixed sum at a fixed date. Functionally similar to a bill of exchange from a forfaiting perspective, issued by the buyer rather than drawn on them.
Letter of credit
A bank undertaking to pay against compliant documents. A deferred-payment or usance letter of credit creates an obligation that can be purchased.
Aval
An unconditional guarantee written on the face of a bill or note by a bank, making that bank liable as a primary obligor. An avalised instrument shifts the credit assessment from the buyer to the avalising bank, which typically widens what can be financed and improves the discount. Where an aval or a standalone bank guarantee is available, tell us at the application stage.
Open account
Where there is no negotiable instrument, we may still structure a purchase around the contract and assignment. This is assessed case by case.
What it does to your balance sheet
Because forfaiting is a true sale rather than borrowing, a without-recourse purchase normally results in derecognition of the receivable.
- The receivable is removed from current assets, replaced by cash
- No new debt is recorded, so gearing is unaffected
- Contingent exposure to that buyer is removed
- Days sales outstanding falls, and working capital turns over faster
- Liquidity and current-ratio measures improve, which matters where you have bank covenants tied to them
Accounting treatment depends on your reporting framework and on the final structure. Confirm the treatment with your auditor before relying on it.
Forfaiting, factoring and invoice discounting
| Aspect | Forfaiting | Factoring | Invoice discounting |
|---|---|---|---|
| What is sold | A specific payment obligation, usually evidenced by a negotiable instrument | A portfolio of trade invoices | Nothing — you borrow against invoices |
| Recourse | Normally without recourse | With or without, varies | Usually with recourse |
| Tenor | Medium and long term — 90 to 720 days in our case | Short term, typically under 120 days | Short term |
| Transaction size | Larger, transaction by transaction | Smaller, high volume | Smaller, high volume |
| Cross-border | Core use case; political and transfer risk assessed | Mostly domestic | Mostly domestic |
| Collections | Purchaser collects at maturity | Factor collects and manages the ledger | You collect |
| Balance sheet | Receivable derecognised | Depends on recourse | Receivable stays; debt added |
Governing framework
International forfaiting transactions are commonly documented under the ICC Uniform Rules for Forfaiting (URF 800), published jointly by the International Chamber of Commerce and the International Trade and Forfaiting Association. URF 800 provides standard terms for the sale and purchase of payment claims, allocating responsibility between seller and purchaser and setting out conditions for satisfactory delivery of documents.
Where appropriate to the transaction, we document on that basis.
Frequently asked questions
Is this a loan?
No. It is the purchase of an asset. You are not borrowing and you are not pledging collateral, which is why the receivable comes off your balance sheet rather than sitting alongside a new liability.
Do you have recourse to me if my buyer does not pay?
Under our standard without-recourse structure, no. Where a transaction is structured with limited recourse, the recourse is defined in the agreement and is disclosed to you in the indicative terms at step 2 — before anything is signed.
What deferred payment terms do you cover?
From 90 to 720 days.
How much of the contract value do I receive?
Between 90 and 95%, depending on tenor, buyer, country, currency and instrument.
Do I need to provide collateral?
No. The receivable itself is what is purchased.
Which currencies do you settle in?
USD and AED.
Will my buyer be involved?
Forfaiting normally requires the buyer’s payment obligation to be transferable, so the structure and the instrument determine what notification is needed. We set this out in the indicative terms so there are no surprises.
What if my buyer does not have a bank guarantee or aval?
It is assessed case by case. An aval widens what can be financed and improves pricing, but its absence is not automatically disqualifying.
Which countries do you cover?
Buyers worldwide, with one exception: we do not finance transactions involving sanctioned countries, entities or individuals.
What is confidential?
All commercial information you send us. Documents are reviewed for the purpose of assessing and structuring your transaction and are not disclosed beyond that.
How fast is the first response?
From one business day after we receive the basic document package.
What do you need to start?
The contract, the invoice, buyer information and your bank details.
Send us the contract.
A contract, an invoice, buyer details and your bank information are enough to get an indicative answer.
Request indicative terms